Rumours of Eskom debt swap irresponsible – Treasury

2019-10-22 16:01 - Lameez Omarjee
Treasury director-general Dondo Mogajane. (Photo:
Treasury Director General Dondo Mogajane. (Photo: Gallo Images / The Times / Esa Alexander) ~ Gallo Images

People speculating that government is considering a debt-equity swap to help plug Eskom's debt gap are "irresponsible" and have a "damaging effect" on the country's future, according to Treasury Director-General Dondo Mogajane.

Mogajane was speaking to Fin24 by phone on Tuesday afternoon.

While he was replying specifically to talk on social media that government may be considering taking on Eskom's estimated R450bn debt, proposals for the state to take over a portion of the utility's debt in return for equity have been raised by business leaders and economists. In February, the utility's former CEO Phakamani Hadebe, for example, said the easiest way to rescue the power utility would be for the government to assume part of its debt. Nedbank Group CEO Mike Brown said in July that, while Eskom needs an immediate injection of cash to continue operating, a debt-to-equity swap should be considered later. 

Bloomberg reported in July, meanwhile, that state asset manager the Public Investment Corporation, which manages about R2.1trn on behalf of state workers, was considering swapping its Eskom bond holdings for equity. The PIC holds 20% of all of Eskom's outstanding bonds. According to Bloomberg, five people with direct knowledge of the talks said the proposal was for the asset manager to become a shareholder in the utility with a say over its finances and board representation. 

Earlier on Tuesday afternoon, analyst Wayne McCurrie of FNB Wealth and Investments tweeted that the rand was rallying on "rumours" of a possible debt to equity swap for Eskom. The local currency was at 14.67 at 15:15, up 0.6% on the day. 

McCurrie added that the upcoming mini budget would be an important platform for government to answer questions about Eskom.

While government has taken a number of steps to help boost Eskom's strained financial position including

  • a grant of R59bn over two years included in a special appropriations bill currently being considered by Parliament; and 

Mogajane outright rejected the notion of a debt swap.

"I do not know anything about that. No one has said that… if we have anything to announce we will announce  it properly," Mogajane said.

Rumours of a debt swap can "destroy the value" government is trying to create. "People throw in things (rumours) because they have ulterior motives. All we know is the medium-term budget policy statement is next week," he said.

President Cyril Ramaphosa downplayed the likelihood of a debt swap back in December 2018, saying the state needs to "look at a number of other options". 

Mini budget 

Finance Minister Tito Mboweni is expected to make announcements on the funding of Eskom next week when he presents his mini budget. Later on Thursday, meanwhile, the National Assembly will debate the special appropriations bill. 

This all comes ahead of ratings agency Moody's review of the country's credit status, expected in late November. Moody's is the only ratings agency to still assess SA at investment grade. It has, however, warned that the R59bn cash injection for Eskom would be credit negative.

"People should not create speculations. We are building a country. It is not easy. Loose and irresponsible statements by people can destroy the future of your kids and my kids," Mogajane warned.

Apart from financial challenges, Eskom is facing operational challenges. The power utility recently reintroduced load shedding, after it faced a severe shortage in capacity due to a failure of a conveyor belt carrying coal from Grootgeluk coal mine to Medupi Power Station in Limpopo. Eskom has said the conveyor belt is expected to be fixed by the end of the week.

At a briefing at Parliament earlier on Tuesday, meanwhile, President Cyril Ramaphosa's economic advisor Trudi Makhaya said that load shedding would be a "significant investment constraint". Government is preparing for its second annual investment conference, to be held early in November. The conference is part of the president's drive to raise R1.2trn in five years. Last year investment commitments worth R300bn were made. 

- Additional reporting by Jan Cronje