Eskom debt issue ‘urgent’
A decision by the Treasury on how Eskom’s debt will be restructured can no longer be delayed as the utility struggles with liquidity problems and urgently needs a much bigger commitment of support from the government to persuade auditors it can keep going.
Eskom, which now has R440bn of debt and must still raise additional financing in 2019 to continue the construction of Medupi and Kusile, is unable to service its debt from its revenue and is in a classic debt trap, borrowing to finance interest payments.
It also has about R45bn in debt redemptions that will fall due in the fourth quarter.
The options on the table include a recommendation from President Cyril Ramaphosa’s task team to create a special purpose vehicle, which will take over a large portion of the debt and raise concessional financing with accelerated climate change commitments.
Also under consideration is a transfer of debt, either partial or total, from Eskom to the government balance sheet.
Although Ramaphosa said in February the power utility would be split into three parts, no further details have been provided on how the financial restructuring will proceed.
The Treasury announced in the budget two weeks later it would provide Eskom with R23bn a year for the next decade to help it service its debt.
This was seen as a better alternative to the government taking over Eskom ’s debt, which involves negotiations with bondholders.
As Eskom is unable to raise money on the capital markets and must finalise its annual financial statements within six weeks, the decision on restructuring the debt is now urgent.
Treasury director-general Dondo Mogajane said on Sunday that restructuring Eskom’s debt was extremely urgent and would be the number one priority of the new government.
The Treasury will be presenting detailed options to the incoming ministers of finance, public enterprises and energy and did not want to discuss these in detail beforehand.
“We are aware of the option that the task team is proposing.
“There are many options that we are looking at, which could include a total or partial takeover of Eskom’s debt or increasing government support.
“We have been talking to ratings agencies about how to do this.
“All our bondholders would need to be brought on board as we do not want to trigger a default,” he said. –