Eskom Gets Some Breathing Room With $1.7 Billion Facility

(Bloomberg) -- South Africa’s Eskom Holdings SOC Ltd. bought itself some financial breathing room after signing a 20 billion rand ($1.7 billion) short-term credit facility with a group of banks.

The power utility needed the liquidity to see it through to the financial year that starts April 1, spokesman Khulu Phasiwe said by phone Wednesday. It will allow the company to continue resolving governance issues and get back to its normal funding program required for the 2018-19 year, acting Chief Financial Officer Calib Cassim said in a statement.

Eskom is facing a financial crisis exacerbated by weak demand for electricity and allegations of graft. It’s building two large coal-fired plants that are over budget and years behind schedule. Cyril Ramaphosa, who took over leadership of the ruling African National Congress in December and became president of the country two weeks ago, announced sweeping changes to Eskom’s board as one of his first moves this year.

S&P Global Ratings cut the utility’s rating late Tuesday to CCC+, saying Eskom was at risk of a distressed exchange situation or default in the next six months and noting “uncertainty regarding the extent and timeliness of government support for Eskom.” The company has monthly debt-service costs of as much as 6 billion rand over the next six months, excluding refinancing of short-term bridge funding and recurring negative free cash flow, S&P said.

The new board and leadership of Eskom have been trying to revive relationships with lenders who stopped working with the company because of allegations of corruption and poor decision making, acting Chief Executive Officer Phakamani Hadebe said in January. Suspended executive Sean Maritz, a former acting CEO who faced charges of misconduct, submitted his resignation on Thursday.

Eskom is in the process of paying back the 5 billion rand bridging loan from South Africa’s Public Investment Corp. that it had arranged for the month of February, Phasiwe said Thursday. The PIC manages the bulk of the pension savings of South Africa’s civil servants.

Read more: South Africa’s Eskom Gets 5 Billion Rand Lifeline From PIC

The facility announced Wednesday is government guaranteed and will form part of the financing of Eskom’s current capital expenditure program, the company said. It also signals “a renewed willingness by financial markets to engage with Eskom,” Cassim said.

The company needs to secure another 70 billion rand for its 2018-19 financial year, Phasiwe said.

“We still have an uphill battle for the next financial year.”

©2018 Bloomberg L.P.