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Eskom banks on new board to reopen lending taps

Jan 23 2018 09:28
Paul Burkhardt, Bloomberg News

Johannesburg - Eskom Holdings is wasting no time approaching potential lenders in the hope that Saturday’s board overhaul was enough to ease concerns about governance at the struggling South African utility.

Eskom will ask banks for funding commitments to return its liquidity buffer to the required R20bn ($1.7bn), spokesperson Khulu Phasiwe said by phone on Monday.

Lenders had told the utility to address corporate governance issues before they would make additional funds available, while others had indicated loans may be recalled if allegations of corruption and concerns about liquidity were not addressed, he said.

Eskom, which hasn’t had a permanent chief executive officer since late 2016, has been roiled by a series of scandals, including allegations of wrongdoing linked to the politically connected Gupta family. Finance Minister Malusi Gigaba has described the utility as his “biggest worry” and S&P Global Ratings said on January 18 that there was a “clear danger” that Eskom could default on its debt. The company is the largest recipient of state guarantees.

The new board announced at the weekend includes high-profile South African executives including Telkom Chairperson Jabu Mabuza, who was named chairperson at Eskom, as well as Imperial Holdings CEO Mark Lamberti and former MTN Group CEO Sifiso Dabengwa. Executives who face allegations of corruption or other impropriety must immediately be removed, according to the government’s statement.

Mabuza canceled his trip to the World Economic Forum in Davos, which he was due to attend with South African cabinet ministers and business leaders, to instead meet with the Eskom executive team on Monday, Johannesburg-based Business Day reported.

“We are hoping that the events that happened on Saturday are going to send a clear message to the market that Eskom and government are taking this issue of corporate governance very seriously,” Phasiwe said.

“The board has been given a fresh mandate that they need to move with speed on the issues that Eskom is facing.”

Chief Financial Officer Anoj Singh, who was suspended following allegations of corruption, submitted a formal letter of resignation on Monday, which the board accepted.

Yields on Eskom’s $1.25bn on bonds due February 2025 plunged 31 basis points to 6.26%, the lowest on a closing basis since September 15. The rate on $1.75bn of debt due January 2021 plunged 51 basis points to 5.45%.

While the appointments address corporate governance at Eskom, “it will need to be followed by quick action to shore up liquidity in the near-term before addressing the underlying long-term concerns,” said Elena Ilkova, a Johannesburg-based analyst at FirstRand’s Rand Merchant Bank unit. These include Eskom’s business model and “unsustainable cost structure”, she said.

Eskom’s next immediate priority is to release its overdue interim results by the end of the month, Phasiwe said. The Johannesburg Stock Exchange said it is considering “a possible suspension” that would freeze trades on listed debt securities if the results are not published in January.

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