{"id":477910,"date":"2021-03-24T07:07:01","date_gmt":"2021-03-24T05:07:01","guid":{"rendered":"https:\/\/businesstech.co.za\/news\/?p=477910"},"modified":"2021-03-24T07:07:01","modified_gmt":"2021-03-24T05:07:01","slug":"south-africa-seeks-lesser-of-two-evils-with-eskom-debt-options","status":"publish","type":"post","link":"https:\/\/businesstech.co.za\/news\/energy\/477910\/south-africa-seeks-lesser-of-two-evils-with-eskom-debt-options\/","title":{"rendered":"South Africa seeks lesser of two evils with Eskom debt options"},"content":{"rendered":"

South Africa\u2019s National Treasury is considering whether it would be better to move a chunk of Eskom Holdings SOC Ltd\u2019s R464 billion ($31 billion) of debt into a special-purpose vehicle or have the state take over responsibility for it directly, people familiar with the situation said.<\/p>\n

While banks have led discussions for the last few weeks over the creation of a so-called SPV that would take over at least R100 billion of Eskom\u2019s debt, and possibly much more, that debt would almost certainly have to be guaranteed by the government, the three people said, asking not to be identified because an announcement hasn\u2019t been made.<\/p>\n

Under the SPV arrangement, the debt Eskom retains and any new debt it contracts would be paid off first as a priority, while that held in the SPV, which could have tenure of 10 years or more, would be last in line and would therefore likely need to be guaranteed by the state to win investor support, they said. That\u2019s something the National Treasury will need to decide on, they said.<\/p>\n

Fiscal Risk<\/strong><\/p>\n

While either option would strengthen Eskom\u2019s balance sheet, both risk imperiling South Africa\u2019s credit ratings by further boosting public debt, seen climbing close to 90% of gross domestic product by 2026 even without adding the utility\u2019s liabilities.<\/p>\n

That makes the stance of major rating companies on any Eskom debt deal a factor in the government\u2019s deliberations, the people said. Moody\u2019s Investors Service already considers Eskom debt guaranteed by the government as sovereign debt.<\/p>\n

The creation of the SPV is just \u201ca complicated way of getting to the same result as moving it onto the sovereign,\u201d said Jones Gondo, a credit analyst at Johannesburg-based Nedbank Group Ltd.<\/p>\n

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\u2019t meet its costs and is subjecting the country to intermittent power outages as a result of inadequate maintenance at its aging fleet of coal-fired power plants.<\/p>\n

If swapping Eskom debt for debt issued by the SPV were deemed voluntary, it wouldn\u2019t be regarded as an involuntary change in control which would trigger a default. The SPV may be managed by the Public Investment Corp., which is state owned and is Africa\u2019s biggest fund manager.<\/p>\n

\"\"<\/a><\/p>\n

Eskom is not considering any default on its outstanding debt and remains in \u201cconstant discussions with the relevant stakeholders\u201d to find a sustainable balance-sheet solution, the utility said in response to Bloomberg\u2019s emailed questions. The National Treasury directed inquiries to Eskom.<\/p>\n

Yields on the utility\u2019s unsecured 2028 dollar bonds have climbed 51 basis points this month to 6.88%, widening the spread over sovereign debt to about 45 basis points.<\/p>\n

\u201cUltimately there is only one option and we are honing in on that: the sovereign taking the risk,\u201d said Peter Attard Montalto, the London-based head of capital-markets research at Intellidex UK Ltd. \u201cAll the structures etc. are by-the-by.\u201d<\/p>\n

\n

Read: Businesses are worried about a third Covid-19 wave and another lockdown for South Africa<\/a><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

South Africa\u2019s National Treasury is considering whether it would be better to move a chunk of Eskom Holdings SOC Ltd.\u2019s R464 billion ($31 billion) of debt into a special-purpose vehicle or have the state take over responsibility for it directly, people familiar with the situation said.<\/p>\n","protected":false},"author":59,"featured_media":466991,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[9874],"tags":[1164,26,4080,1799],"class_list":["post-477910","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-energy","tag-eskom","tag-headline","tag-intellidex","tag-nedbank"],"_links":{"self":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/477910","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/users\/59"}],"replies":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/comments?post=477910"}],"version-history":[{"count":2,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/477910\/revisions"}],"predecessor-version":[{"id":477916,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/477910\/revisions\/477916"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media\/466991"}],"wp:attachment":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media?parent=477910"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/categories?post=477910"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/tags?post=477910"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}