{"id":611710,"date":"2022-07-28T16:32:55","date_gmt":"2022-07-28T14:32:55","guid":{"rendered":"https:\/\/businesstech.co.za\/news\/?p=611710"},"modified":"2022-07-28T16:32:55","modified_gmt":"2022-07-28T14:32:55","slug":"government-set-to-take-over-portion-of-eskoms-r396-billion-debt","status":"publish","type":"post","link":"https:\/\/businesstech.co.za\/news\/energy\/611710\/government-set-to-take-over-portion-of-eskoms-r396-billion-debt\/","title":{"rendered":"Government set to take over portion of Eskom\u2019s R396 billion debt"},"content":{"rendered":"

South Africa\u2019s Treasury is finalising a plan to take over a portion of Eskom\u2019s R396 billion ($24 billion) debt as part of a process to place the struggling electricity company on a sustainable footing, a top official said.<\/p>\n

The \u201cbroad brush strokes\u201d of the debt transfer will be announced in the mid-term budget scheduled for October, Duncan Pieterse, head of assets and liability management at the National Treasury, said in an interview Wednesday. The authorities will seek cabinet and parliament\u2019s approval for the plan after determining the amount, along with the conditions the utility will need to meet before and following such a transaction.<\/p>\n

The Treasury has done financial modeling around the debt transfer and appointed lawyers to advise it on regulatory and legal hurdles, including loan covenants, Pieterse said. It\u2019s also working with Eskom to determine what needs to be done to ensure the state-owned company is sustainable after the debt transfer has taken place.<\/p>\n

\u201cThere is no point in dealing with the debt, only for the entity to return to the fiscus for further support,\u201d Pieterse said. \u201cThen you are basically executing a debt transfer without making sure that you will have a sustainable entity in the end,\u201d he said, adding that \u201cEskom has been very constructive in our engagements with them.\u201d<\/p>\n

Bailouts, Blackouts<\/h3>\n

Setting a plan for Eskom\u2019s debt would mark a key step toward turning around the engine that drives Africa\u2019s most industrialized nation, after years of government bailouts and rolling power outages that have weighed on the economy. The utility has been unbundling into generation, distribution and transmission units in a strategy to update the nearly century-old monopoly, but the government has been stymied by the debt pile that\u2019s required cash injections just to service.<\/p>\n

Eskom\u2019s bonds surged the most since May 2020, with yields on unsecured 2028 dollar securities dropping 150 basis points to 11.18% by 3 p.m. in Johannesburg. Yields on benchmark 10-year government rand bonds fell 19 basis points to 10.9%, and the rand erased a decline of as much as 0.8% to trade little changed against the dollar.<\/p>\n

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

\u201cThe government has responsibility for the debt build-up on Eskom\u2019s balance sheet, so it is a good step in the right direction,\u201d said Lutz Roehmeyer, chief investment officer at Berlin-based Capitulum Asset Management. The debt transfer alone would not solve Eskom\u2019s problems without operational reforms, he added.<\/p>\n

Finance minister Enoch Godongwana said in his February budget statement that the Treasury would work on a plan to find a \u201cfair and equitable\u201d debt solution for Eskom by the end of the current financial year. The debt-transfer proposal flows from that announcement, Pieterse said.<\/p>\n

\u201cOnce the technical work is complete, then this work has to be subjected to budget processes and be incorporated and tested within the fiscal framework, which is ultimately approved by the minister of finance, cabinet and parliament,\u201d Pieterse said. \u201cAs announced by the president, we intend to outline the principles of the proposal at the time of the medium-term budget policy statement in October and the execution modalities thereafter.\u201d<\/p>\n

Yields on South African local-currency government bonds are among the highest in emerging-markets, an ascent that accelerated from 2017, when Eskom started to face mounting fiscal and governance issues. Goldman Sachs Group identified the utility as the biggest single threat to the nation\u2019s economy.<\/p>\n

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

In 2019, Eskom received a multibillion dollar bailout, which resulted in the government increasing the amount of debt it sold at weekly auctions, driving up yields. The following year the Public Investment Corp., a manager of government workers\u2019 pensions and unemployment funds, emerged as the potential counter-party of an Eskom debt-for-equity swap. Other solutions have since emerged and faded.<\/p>\n

Among the other proposals to help reduce Eskom\u2019s debt is one resurrected by Godongwana to sell some of its coal-fired power plants. That idea is still under consideration, Pieterse said.<\/p>\n

\u201cIn terms of the selling of power plants, it is something that we have asked Eskom to look into and it is obviously tricky,\u201d he said. \u201cThat is one of the issues under discussion, but it isn\u2019t the main issue. The main issue is how do you create the space for Eskom to maintain the plants they currently have and to invest in the transmission and distribution parts of their business.\u201d<\/p>\n

Taking a large portion of Eskom\u2019s debt onto the state\u2019s balance sheet may help lower South Africa\u2019s borrowing costs by removing the uncertainty that\u2019s built into sovereign yields, Pieterse said.<\/p>\n

\u201cThe question is what happens to our risk premium going forward,\u201d he said. \u201cThe feedback we have received has been along the lines of, provided you can get the right conditions in place, provided it is a credible transaction, this can actually be net positive for the sovereign.\u201d<\/p>\n

\n

Read: Motorists in South Africa can expect more good news about the petrol price<\/a><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

South Africa\u2019s Treasury is finalising a plan to take over a portion of Eskom\u2019s R396 billion ($24 billion) debt as part of a process to place the struggling electricity company on a sustainable footing, a top official said.<\/p>\n","protected":false},"author":10,"featured_media":466991,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[9874],"tags":[1164,1999,26],"class_list":["post-611710","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-energy","tag-eskom","tag-goldman-sachs","tag-headline"],"_links":{"self":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/611710","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\/10"}],"replies":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/comments?post=611710"}],"version-history":[{"count":2,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/611710\/revisions"}],"predecessor-version":[{"id":611740,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/611710\/revisions\/611740"}],"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=611710"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/categories?post=611710"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/tags?post=611710"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}