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Eskom may be 'too big to fail' - but it's not alone

May 24 2019 10:55
Justin Villamil and Robert Brand, Bloomberg

It’s been a rough ride for Eskom, the country's state-owned electricity behemoth.

Rolling blackouts due to aging infrastructure have shaved as much as 1.1 percentage point from the nation’s economic growth, and a debt load of almost R500bn is putting the nation’s fiscal path and credit ratings at risk.

It’s no wonder that Goldman Sachs described Eskom as the single biggest threat to the country’s economy. Yet South Africa isn’t alone. Across Latin America and Eastern Europe, companies that are seemingly too big to fail are weighing down nations they were once meant to support.

Mexico

Petroleos Mexicanos holds the dubious title of the world’s most indebted major oil company, struggling under a $106.5 billion burden that might even make an Eskom executive gasp.

The quandary, for the government and Pemex investors alike, is that while Mexico doesn’t explicitly guarantee the company’s debt, it does rely on the firm for almost 20% of its budget revenue.

President Andres Manuel Lopez Obrador has unveiled a raft of support measures, including a crackdown on fuel theft, but investors so far remain unconvinced. To them, Lopez Obrador’s path to reversing more than a decade of production and revenue declines is unclear - and that concern may jeopardise Mexico’s sovereign rating. On Thursday, a document showed Mexico is seeking as much as 138.7 billion pesos ($7.3 billion) worth of tax breaks for the debt-laden state driller in 2020 and 2021. 

Chile

Chile is grappling with a similar issue - albeit on a smaller scale - with Corp Nacional del Cobre de Chile. The world’s largest copper producer, known as Codelco, has warned that it faces a severe output slump if it doesn’t invest more than $20 billion. While President Sebastian Pinera hasn’t offered new funding, Chief Executive Officer Nelson Pizarro has said that a lack of government support could swell Codelco’s debt to $21 billion from $15.5 billion now.

Ukraine

Ukraine’s Privatbank wasn’t state-owned to begin with. Yet it became the government’s problem when the central bank unearthed a $5.6 billion capital hole in the nation’s biggest lender in 2016. The bank was nationalised in a takeover coordinated with the International Monetary Fund, Ukraine’s main creditor.

Almost three years later, the government has failed to recover any losses from the two Ukrainian oligarchs who used to own the bank and who are now challenging the takeover in the nation’s courts. A judge in Kiev ruled that the government’s takeover of Privatbank was illegal. There’s no immediate impact on ownership because that decision is being appealed.

Croatia

Retail group Agrokor, renamed Fortenova Grupa d.d. this year amid its ongoing overhaul, threatened the economic and political stability of Croatia and its neighbors when debt-fueled expansion pushed it into state-run restructuring two years ago.

The company, at its height the biggest in the former Yugoslavia, risked toppling a vast network of subsidiaries and suppliers from Hungary to North Macedonia before the government in Zagreb and international creditors stepped in.

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