Hadebe moots converting Eskom debt to equity to lessen unsustainable gearing
NEW ESKOM interim chief executive Phakamani Hadebe yesterday raised the prospects of converting some of the cashstrapped power utility’s debt into equity in order to reduce “unsustainable” gearing.
The conversion of Eskom’s debt to equity often comes up whenever the power utility is facing serious financial problems. As part of an Eskom bailout, the government in 2015 converted a R60 billion loan to equity. At the time, the move improved Eskom’s gearing from 75 percent to 67 percent.
Speaking at the release of Eskom’s interim results for the six months ended September 30 last year, Hadebe said, at 73 percent, Eskom’s gearing was unsustainable. He alluded to the need to convert some of the debt to equity. “You can talk to the government. There are other government entities like the (Industrial Development Corporation, Development Bank of Southern Africa and Public Investment Corporation). You can enter into some negotiation and discussions. These are things that we must think about as we move forward,” he said.
He, however, said Eskom had not spoken to any of the stateowned financiers. He said his comments were “just an idea”. At the same time Eskom had to improve efficiencies and reduce the cost of doing business. Its operational performance in the six months was satisfactory.
But he was candid in his remarks about Eskom’s woes and singled out poor leadership as the genesis of the financial problems at the power utility.
“We are where we are, because of poor leadership across the whole spectrum of Eskom. Decisions that had to be taken were not taken,” he said.
Hadebe said: “When we took over 10 days ago, we were happy to find that the list of lenders, bankers and investors included the people that we know. But when we spoke to them, they made it clear that they cannot fund us unless we deal with corruption within Eskom.”
Individuals implicated in corruption had to leave Eskom as soon as possible. A handful of key executives and managers, including former chief financial officer Anoj Singh, either resigned or were dismissed last week.
Eskom yesterday reported a 34 percent decrease in aftertax profit, from R10bn to R6bn. Net cash from operations was down from R32bn to R22bn, while liquid assets dropped from R30bn to R9bn. Revenue was down 2 percent to R96bn.
Eskom chairperson Jabu Mabuza yesterday said the new board’s focus had centred around finding a “neat” solution to Eskom’s liquidity problems, governance problems and releasing the interim results on a going concern basis before the end of this month. “These problems required quick and decisive actions,” he said.
The steps that the board had taken so far would inculcate a renewed culture of good governance and entrench business and financial discipline. The board’s priority was to restore trust and investor confidence to access financial markets.
Mabuza said the decision by Moody’s Investors Service to downgrade Eskom on Friday was “understandable”. He said the downgrade would motivate Eskom to ensure financial sustainability. “We are mindful that this will not be easy. But as a collective we have the skills, the strength and the courage to turn things around,” he said.
Restoring confidence in Eskom included defining a framework within which the board would operate alongside the government, Eskom’s shareholder. “To this end… we have discussed and agreed on a framework that clearly sets out rules, responsibilities and clear deliverables of the board and the shareholder – where the duties of the board start and where the duties of the ministry and department end.”
Eskom would work closely with the National Energy Regulator of South Africa “to find a solution to the future price path in the interests of the country”.
Meanwhile, acting Eskom chief financial officer Calib Cassim said yesterday that the power utility could not afford the expansion of nuclear capacity.