Johannesburg - Let me start off by borrowing a phrase from former president Thabo Mbeki’s seminal “I am an African” speech, and say that, “on an occasion such as this, we should, perhaps, start from the beginning”. So, let me begin: Eskom’s bond will continue to be attractive for as long as Eskom is stable and its debts are guaranteed by the government.
The Public Investment Corporation is the single largest investor in Eskom debt and their support of Eskom’s debt programme is not in question.
Eskom has approximately R300 billion of debt on its balance sheet, and Futuregrowth holds only R4bn of Eskom bonds. Put differently, the execution of our funding plan of R327bn going forward does not rely on Futuregrowth’s participation.
In November 2014, the government set up the War Room to deal with Eskom’s inability to keep the lights on. Eskom faced serious governance, technical, profitability and liquidity challenges that resulted in the Deputy President being tasked to intervene and turn around Eskom. It was arguably the worst uncertainty Eskom ever faced and yet bondholders continued to back it.
For the financial year to March 31, 2016, Eskom was able to raise funding of R54bn. This included R8bn from domestic bond markets and R10bn from private placements of domestic bonds. Energy experts and industry analysts expected that the trend of load shedding would continue for the next three to five years, with some saying it could take up to 10 years. Throughout these challenges, bondholders including Futuregrowth and Jyske Bank continued to buy and hold on to Eskom bonds.
Today, Eskom has stabilised. Its operational turnaround has surprised many pundits. Over one year has passed without load shedding. Cash from operations increased from R2bn in 2014 to R37bn in 2016; 57 percent of the required debt funding for financial year 2017 is secured and yet Futuregrowth and others choose to suspend new lending to Eskom and six other state-owned entities (SOEs). Why? The National Treasury, which has nominal guarantees in place for SOE debt of R467bn, should actively lead the charge to resolve this matter.
Turned the corner
On August 31, the day Eskom reported to Parliament that it had turned the corner; the day it reported to Parliament that the Energy Availability Factor had improved from 69.6 percent to 79.1 percent; that diesel consumption had decreased from R1bn a month to zero for the months of July and August; that more than 12 months had passed without load shedding; that it has R 37bn cash in the bank and 57 percent of its funding plan for the 2016/17 financial year is secured; that Ingula power plant is connected to the national grid and is generating 1 000 megawatts; and on the eve of connecting Medupi unit 5 to the grid for the first time, Futuregrowth suspends new lending to six SOEs, including Eskom.
This decision is allegedly motivated by “growing concerns about the governance and decision structures of the state-owned companies”. Denmark’s Jyske Bank followed suit. Other South African asset managers expressed support for Futuregrowth, but stopped short of doing the same.
The fact is, the uncertainties over Eskom liquidity and the governance issues of 2014/15 did not deter the demand for its government guaranteed, rand denominated debt. Hence Eskom was able to raise funding of R54bn for the year to March 31, 2016. It was the same Jyske Bank that was quoted in the media report of August 17, 2015, as saying: “Forget that South Africa’s state power utility is struggling to keep the lights on and that its profit has fallen. In the world of sovereign-linked bonds, its debt is attractive.”
The bonds of Eskom will continue to be attractive for as long as Eskom is stable and its debts are guaranteed by the government. The National Treasury cannot be silent when sovereign-linked bonds are under attack.
* Matshela Koko is Eskom’s group executive for generation.
* The views expressed here do not necessarily reflect those of Independent Media.
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