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R5bn Eskom loan is smart investment, argues PIC

Feb 12 2018 16:05
Tehillah Niselow

Johannesburg - The Public Investment Corporation (PIC) has for the first time revealed the conditions attached to last week’s R5bn loan to Eskom, as well as the rationale behind it, after coming under heavy fire from the Public Servants Association (PSA).

The PSA had said that the PIC - which manages the assets of the Government Employees Pension Fund (GEPF) and is the largest investor on the JSE with R1.9trn in assets under its control - had failed to consult adequately before making the loan. 

In a letter sent to Parliament’s standing committee on finance on Thursday and seen by Fin24, PIC CEO Dan Matjila said that the R5bn in "bridging finance" until the end of the month would achieve above market interest rates for the GEPF when it is paid back. 

“The agreement entered into between the PIC and Eskom is for a money market instrument fully backed by a government guarantee, in Eskom’s Domestic Medium-Term Note programme (DMTN); (it) was determined by adding 75 basis points to the one-month Johannesburg Interbank Agreed Rate (JIBAR)," he wrote. 

The JIBAR rate is currently 7.13%. 

He added that the loan was in the interest of the PIC and all other asset managers who hold Eskom bonds on behalf of their clients, as Eskom defaulting on its debt would have been detrimental to all investors. 

The power utility requires R20bn by the end of February to stay afloat.

Its new leadership has said it received commitments by banks to extend credit facilities in mid-February, subject to due diligence.

The PIC stepped in as a form of bridging finance. “We cannot afford to undo the gains made so far at Eskom by allowing Eskom to default on its debt obligations. With the appointment of a new board and acting CEO with proven track records, the governance risk at Eskom has significantly reduced,” said Matjila.

Matjila wrote to chairperson of the finance committee Yunus Carrim that the decision was taken in consultation with the GEPF’s executive management and some members of its board of trustees. He said the PIC was under no obligation to consult with trade unions about the short-term loan.

“Any such communication will be out of courtesy,” he said.  

Matjila added that the asset manager is mandated to invest in short-term money market instruments, provided that the entity is investment grade, or backed by a government guarantee, as is the case with Eskom.

New deadline for Gigaba 

Meanwhile, the PSA has given Finance Minister Malusi Gigaba until 18:00 on Monday evening to respond to its letter demanding that urgent action be taken to resolve its concerns about the PIC. This came after Gigaba postponed a planned meeting with the PSA on Monday.

According to his spokesperson Mayihlome Tshwete, Gigaba had to attend the special ANC national executive committee meeting on Monday afternoon and also had Budget Speech commitments.

Tshwete said that the meeting with the the PSA will now be held on March 2 after the Budget Speech, as the budget on February 21 was “the big priority” for Treasury. 

The PSA, which represents about 200 000 government employees, has written several letters since September 2017 requesting that Gigaba, as the sole shareholder of PIC, explain why no workers or union representatives sit on the board.

The union previously threatened court action by Monday if no response was provided by Gigaba.

“We are on standby, we are waiting until tonight 18:00 for him to respond to us… we don’t want court action, we want to resolve matters,” PSA general manager Ivan Fredericks told Fin24 by phone early on Monday afternoon.

Fredericks said the union wanted to resolve the issue of board representation and why the PIC extended a R5bn credit lifeline to Eskom with Gigaba. 

Tshwete said that while the minister would engage with the PSA about how the PIC board functions, he is not "the CEO of the PIC".

"[They] have every right to engage directly with the PIC,” he said. He added that the PIC doesn’t ask permission from the National Treasury before it invests.

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gepf  |  psa  |  pic  |  eskom  |  malusi gigaba  |  labour  |  unions
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