Eskom in big trouble with the JSE

The JSE has censured Eskom for failing to comply with Debt Listing Requirements.

Eskom, a state-owned entity, is listed on the JSE as an issuer of debt securities.

“In 2020, the JSE implemented specific rules for state-owned entities or municipalities governing, inter alia, the disclosure of policies and treatment of Domestic Prominent Influential Persons and Loans and
Procurement to related parties,” said the exchange.

As such, an issuer is required to have in place and publish the following details on its website:

• A policy on the disclosure and treatment of domestic prominent, influential persons who are board members and prescribed officers in respect of any dealings by the issuer with domestic prominent, influential persons, together with a register of such; and

• A policy on the disclosure and treatment of loans and procurement with any related party, domestic prominent, influential persons and prescribed officers, together with a register of such (collectively, the policies and registers).

Eskom failed to comply with the provisions following the promulgation.

In September 2021, Eskom applied to the JSE for an extension to finalise the relevant policies and registers, which the JSE granted until 28 February 2022.

However, Eskom said that it failed to abide by the terms of its own extension request and then requested a further extension from 22 December 2022 to July 31, 2023.

By 31 July 2023, Eskom still failed to publish the relevant policies and registers.

“Despite Eskom’s repeated undertakings to the JSE, Eskom’s current register of loans and procurement with any related party, domestic prominent, influential persons and prescribed officers, has not been published on its website, in clear disregard of the provisions of the Debt Listings Requirements.”

“Even in those instances where the required policies and registers were published on the website, such publications were not made timeously and exceeded the time frames undertaken by Eskom and granted by the JSE.”

This, the JSE found Eskom to be in breach of the Debt Listing Requirements for failing to timeously publish the policies and registers.

“Domestic prominent influential persons, by virtue of their positions, can have significant influence over the Issuer’s operations and financial decisions,” said the JSE.

“Without transparent disclosure of how these individuals are treated and involved in the Issuer’s affairs, there is a risk of conflicts of interest that can undermine investor confidence. Similarly, disclosing loans and procurement involving related parties is crucial.”

“Transparent reporting allows noteholders to assess the fairness and integrity of these transactions. Failure to disclose such information deprives noteholders of crucial insights into potential risks and the Issuer’s true financial health.”

The JSE has decided to impose a public censure and a fine of R3 million, wholly suspended for three years, on the condition that Eskom is not found to be in breach of similar provisions of the Debt Listings Requirements during the suspension period.

Eskom not happy

Eskom admitted that it has not fully complied with the requirement to publish the policies and registers.

However, it said that its publically available Memorandum of Incorporation (MOI) states that it is not permitted to advance loans to directors or prescribed officers and, therefore, no such
transactions have taken place or would have needed to have been recorded in a register.

In addition, Eskom’s Conflict of Interest Policy means that it is restricted from doing any business and
entering into any form of procurement contracts or transactions with any directors, prescribed
officers and any employees of Eskom.

Therefore, it stated that no transactions of this nature have taken place or would have needed to have been recorded in a register.

“In conjunction with the above, and when considering the period in review from 31 August 2020 Debt Listing Requirements came into effect, there would have been no need for any disclosure in relation to loans to directors or prescribed officers,” said Eskom.

“Nor would there be any procurement transactions with any directors or prescribed officers as these dealings are strictly prohibited by Eskom’s MOI and Conflict of Interest Policy.”

“As far as Eskom is aware, it has not, during the period in review, received any inquiries from noteholders/stakeholders or any other market participant as to the policies and register.”

“In the period under review, Eskom has accessed the market through its Note Programme on a very limited number of occasions and, in each instance, has done so in response to specific requests from existing sophisticated institutional investors.”

Thus, Eskom believes that its failure to publish the policies and registers has not prejudiced noteholders.

It added that the SE sanction is for not timeously publishing the policies and registers does not suggest any breach of the policies themselves.

The outstanding policies and registers are now largely finalised and published on Eskom’s website as of Friday, 12 April 2024 (policies) and Friday, 28 June 2024 (registers).

Eskom also informed its top 100 suppliers of the new requirements to identify and maintain the register of suppliers who fall within the purview of debt listing requirements. The requisite register will be published on or before 31 October 2024.

“Eskom is disappointed to have received a public censure and suspended fine from the JSE but is wholly committed to ensuring the entity complies with the DLRs and upholds the values and principles of good corporate governance.”

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