Banks and other investors in talks to solve Eskom’s R464 billion debt

Nedbank Group Ltd. is leading discussions to restructure South African power utility Eskom Holdings SOC Ltd.’s R464 billion ($32 billion) debt load, according to people familiar with the talks.

The parties met in recent days, and one of the options is to transfer at least R100 billion of debt to a special-purpose vehicle that would be overseen by the Public Investment Corp., Africa’s biggest fund manager, the people said.

“Eskom intends to work constructively with all its creditors to develop a plan that will improve the company’s balance sheet while adequately catering for the requirements of its lenders and other stakeholders,” the utility said in response to questions.

“The utility is in regular discussions with its stakeholders to agree on the best solution to shape the balance sheet as the company moves to the next phase of its strategy.”

Eskom, described by Goldman Sachs Group Inc. as the biggest threat to the South African economy, has become mired in debt as a result of overspending on projects.

The utility can’t meet its costs and is subjecting the country to intermittent power outages as a result of inadequate maintenance at its ageing fleet of coal-fired power plants.

The yield premium of Eskom’s 2028 dollar bonds over comparable government debt narrowed on Friday to the least in 17 months, suggesting bondholders are gaining confidence in a rescue plan.

“We continuously engage with strategically important state-owned companies including Eskom,” Nedbank said in an emailed response to queries.

“These constructive engagements are held with positive intent, together with other financial institutions and respective shareholders, and focus on creating solutions in respect of liquidity challenges faced by state-owned companies.”

Interest payments

Eskom has previously said it can only service about R200 billion of debt, and lenders may help it meet some of its upcoming interest payments, said the people.

The PIC, which oversees the pensions of South African government workers, manages R1.91 trillion of assets, including about R90 billion of Eskom’s bonds.

The company has previously supported a failing retailer – Edcon Holdings Ltd. – and has invested heavily in the debt of other struggling state-owned entities.

It has previously proposed converting the Eskom debt it holds into equity.

“The PIC considers a wide range of possible options in this regard, in light of the impact of energy security on all investments,” a spokesman said by email.

“Whatever solution the PIC eventually supports, if any, will be informed by clients’ investment mandates and their risk-and-return expectations.”

The Congress of South African Trade Unions, a key supporter of President Cyril Ramaphosa, has repeatedly urged the use of PIC funds to rescue Eskom.

After transferring the debt to a special-purpose vehicle, the remaining liabilities could be divided between three proposed Eskom units – transmission, generation and distribution – when a planned split comes into effect, the people said.

No final decisions have been made and proposals will be presented to the National Treasury in the coming weeks, said the people.

The Treasury didn’t immediately respond to emailed queries. Neither did the Ministry of Public Enterprises, which oversees Eskom. The presidency declined to comment.

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Banks and other investors in talks to solve Eskom’s R464 billion debt