Photographer: Waldo Swiegers/Bloomberg

Leaders at South Africa's Eskom Promise Sweep Lenders Seek

Updated on
  • Potential funders want to see corruption tackled before talks
  • Eskom to consider asset sales, review capital structure

The new leaders of Eskom Holdings SOC Ltd. vowed to resolve governance problems as they outlined “significant” financial difficulties at South Africa’s state-owned power utility.

Lenders who had stopped taking Eskom’s calls because of allegations of corruption and poor decision making were encouraged by the board overhaul announced earlier this month by Deputy President Cyril Ramaphosa, but wouldn’t start funding talks with the cash-strapped company until it had restored some credibility, acting Chief Executive Officer Phakamani Hadebe said Tuesday.

“Any credible solution to stabilize Eskom starts with governance,” said Chairman Jabu Mabuza, who holds the same position at fixed-line operator Telkom SA SOC Ltd.

The company will seek to promote a culture that encourages integrity and whistleblowing, while those that are found wanting “need to be out as soon as possible,” Hadebe said.

Bond Auctions

Eskom published overdue financial results with only a day to spare before a possible suspension of its debt instruments on the Johannesburg Stock Exchange. The company had to assess future financial sustainability based on a lower-than-requested tariff increase that takes effect in April, acting Chief Financial Officer Calib Cassim said.

The company is also owed more than $1 billion in late revenue from municipalities, while costs rose during the year and sales volumes declined, he said. The utility plans to resume auctions in the domestic bond market from April and return to international markets in the second half.

Profit fell 34 percent to 6.3 billion rand ($529 million) in the six months through Sept. 30 from a year earlier. Debt securities and borrowings swelled 10 percent to 367 billion rand.

Yields on Eskom’s $1.75 billion of 2021 Eurobonds dropped 13 basis points to 5.43 percent by 4:17 p.m. in Johannesburg. The rand reversed a loss to trade 0.1 percent stronger at 11.8332 per dollar.

Eskom, which hasn’t had a permanent CEO since late 2016, has been roiled by a series of scandals, including allegations of corruption linked to the politically connected Gupta family. Everyone concerned has denied wrongdoing. However, Finance Minister Malusi Gigaba has described the utility as his “biggest worry” and S&P Global Ratings said Jan. 18 that there was a “clear danger” that Eskom could default on its debt. The company is the largest recipient of state guarantees.

Hadebe said he’s “confident” that the utility will secure the 20 billion rand it needs to boost liquidity, without giving a timeframe. The company is in talks supported by National Treasury to explore several options to fund its cash flow needs.

After the amount needed for liquidity is secured, “we would look from an Eskom perspective to initiate our own program of auctions from, I would say, April towards July,” Cassim said in an interview. The utility held off on plans to sell a Eurobond in February because of the delay in reporting results, but after attempting to get an unqualified audit by July could return to the international market the same month or August, he said.

It will also seek discussions with the National Energy Regulator of South Africa about its tariffs to highlight the utility’s financial position and challenges, according to Hadebe.

Read more: South Africa Overhauls Utility Eskom’s Board, Orders New CEO

Eskom will formulate a capital-structure plan and then look at potential asset sales to raise funds, Hadebe said. The utility should also consider converting some debt to equity because its sustainability can’t be achieved through borrowing, he said.

— With assistance by Robert Brand

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