Eskom, Trea­sury to turn to lo­cal banks

• Util­ity needs to raise R20bn in com­ing weeks • Race to head off World Bank de­fault let­ter

Business Day - - FRONT PAGE - Carol Pa­ton Deputy Edi­tor

Eskom ex­ec­u­tives and the Trea­sury will ap­proach lo­cal banks as early as Mon­day to re­store lend­ing as the com­pany races to avoid the sus­pen­sion of its bonds by the JSE and to dodge a pend­ing let­ter of de­fault from the World Bank.

The state-owned com­pany needs to raise R20bn over the next few weeks to per­suade its au­di­tors that it is a go­ing con­cern. This will en­able it to pub­lish in­terim fi­nan­cial state­ments and al­low ac­cess to for­eign debt cap­i­tal mar­kets.

If the World Bank is­sues a de­fault let­ter dur­ing a sched­uled meet­ing with Deputy Pres­i­dent Cyril Ramaphosa at the World Eco­nomic Fo­rum in Davos, Switzer­land this week, it will trig­ger a 14-day re­call on its $3.75bn loan, which could trig­ger a re­call on Eskom’s R350bn debt moun­tain.

On Satur­day, the Pres­i­dency an­nounced a new board for Eskom, to be headed by Telkom chair­man and busi­ness leader Jabu Mabuza.

The new in­terim group CE is Phaka­mani Hadebe, a for­mer Absa ex­ec­u­tive and for­mer Trea­sury of­fi­cial.

Fi­nance Min­is­ter Malusi Gi­gaba said on Sun­day he ex­pected that with the prom­ise of a new board in place Eskom would again be able to raise money. Lo­cal banks sus­pended new lend­ing to Eskom at the end of Septem­ber and have rolled over short-term debt to March.

“The main is­sue for the banks were the gov­er­nance is­sues. The Trea­sury di­rec­tor-gen­eral, Dondo Mo­ga­jane, is pre­par­ing as of Mon­day to raise money; we think lenders will be open to us again,” Gi­gaba said.

The an­nounce­ment of the new board came af­ter a week of fre­netic ac­tiv­ity by the Trea­sury to en­gage with Eskom’s au­di­tors and Depart­ment of Pub­lic En­ter­prises of­fi­cials over its fi­nan­cial po­si­tion and to drive a process by Pres­i­dent Ja­cob Zuma and Ramaphosa to ap­point new board mem­bers.

Eskom said on Sun­day that it was in a po­si­tion to make in­ter­est re­pay­ments in Jan­uary and to pay salaries as it con­tin­ued to raise rev­enue through elec­tric­ity

sales. How­ever, in terms of its fund­ing plan, if it were un­able to raise R14bn in Fe­bru­ary and R6bn in March, it would run into liq­uid­ity prob­lems on ev­ery front from salaries to the re­pay­ment of short-term debt.

To avoid the sus­pen­sion of its bonds, Eskom must pub­lish its in­terim fi­nan­cial state­ments, which are more than three months over­due, by the end of Jan­uary.

But to do so, it must first rem­edy its go­ing-con­cern sta­tus by solv­ing its fund­ing short­fall.

A so­lu­tion to these prob­lems would al­low it to raise a $1bn bond on the in­ter­na­tional mar­ket that has been sched­uled for Fe­bru­ary.

An­a­lysts said on Sun­day that the sus­pen­sion of its bonds would ren­der rais­ing debt on the in­ter­na­tional cap­i­tal mar­ket im­pos­si­ble.

Nazmeera Moola, co-head of fixed in­come at In­vestec As­set Man­age­ment, said the main im­pli­ca­tion of a bond sus­pen­sion would be “the sig­nalling is­sue”, which could af­fect both in­vestor per­cep­tions and credit rat­ings de­ci­sions.

Adding to the week’s drama was pres­sure from the World Bank that it would is­sue a let­ter of non­per­for­mance this week. Gi­gaba met World Bank of­fi­cials in Wash­ing­ton in Novem­ber and made un­der­tak­ings to im­prove Eskom’s gov­er­nance. Un­til Satur­day, none of those con­di­tions had been met.

Trea­sury of­fi­cials hope the steps taken at the week­end will en­able them to de­lay the Davos meet­ing and get the bank to “pause” its pro­cesses.

While Eskom has fully used the World Bank loan, it has not met most of the project-re­lated con­di­tions, in­clud­ing the con­struc­tion of a 100MW con­cen­trated so­lar plant and fit­ting flue gas desul­phuri­sa­tion at Medupi to re­duce car­bon emis­sions.

The World Bank could not be reached for com­ment.

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