DA slams PIC, saying it violated investment mandate in Eskom loan
Economy / 7 February 2018, 2:41pm / Staff Reporter
JOHANNESBURG - Efforts to clean up Eskom got off to a promising star after the Public Investment Corporation (PIC) said it would advance a R5billion bridging facility to the power utility for one month.
The South African opposition party, the Democratic Alliance (DA) however, have hit out at this rescue, stating that the R5bn bridging facility may have violated the organisation’s investment mandate which bars it from investing in non-investment grade assets.
The loan provides much-needed funding to the beleaguered Eskom, which is battling deteriorating liquidity. The power utility urgently needs R20bn by the end of its financial year on March 31. The PIC, a state-owned financier, said the loan would fund Eskom’s operations during this month.
It said Eskom approached it for a loan, citing enormous liquidity constraints, which were threatening its going concern status.
In the six months ended September 30 last year, Eskom’s liquid assets decreased from R30bn at the end of September 2016 to R9bn.
The DA said in a statement, " In May 2016, the PIC provided the Standing Committee on Finance with a document marked ‘Private and Confidential’ which set out the organisation’s investment mandate. Part of that mandate includes:
“…the ultimate objective of generating sustainable returns for the clients on whose behalf the PIC invests.”
“…any investment that is misaligned with the mandate cannot be funded.”
"PIC client mandates provide for investing in listed and unlisted instruments with the former allowing solely for investment grade instruments."
The DA further lashed out, stating that all rating agencies rated Eskom below investment grade and that the power utility was downgraded further, deeper into junk, as recently as January 2018.
" Worse still, the suggestion by the new Eskom board to convert Eskom debt into equity, in what can only be a fake partial privatisation drive, raises concern that the PIC loan might not be paid back. The PIC must now explain how they apparently ignored its mandate by extending a loan to a technically insolvent and junk-rated entity such as Eskom," the statement from the DA, issued by Alf Lees MP - DA Deputy Shadow Minister of Finance, further read.
The DA questioned whether the PIC is acting in the best interests of pensioners considering that they choose to pour money into Eskom, despite their current R90 billion exposure to Eskom bills and bonds.
"The DA will ensure that Parliament takes a strong stand against any possible abuse of pension funds under the management of the PIC. We have taken the first step in this regard through the introduction of the PIC Bill which will ensure that the PIC abides by its investment mandate."
Lees further added, "I have agreed with Natasha Mazzone, the DA Shadow Minister of Public Enterprises, to write to Eskom and request a briefing, to Parliament before the main budget, on how the Eskom plans to solve its liquidity crisis. The PIC must also account on the rationale behind granting a loan to a non-investment grade entity and terms of reference for the loan."