Eskom Unbundling Fails to Cut Solvency Risk, Futuregrowth Says

(Bloomberg) -- Futuregrowth Asset Management said that despite efforts to make South Africa’s Eskom Holdings SOC Ltd. profitable, including a process of unbundling its divisions into separate entities, “the core problem of debt” has yet to be addressed.  

The utility that reported a fourth straight full-year loss on Aug. 31 has very high finance costs on a debt pile of about 400 billion rand ($28 billion). Eskom expects to separate its transmission division from the utility by the end of the year, with generation and distribution units to follow in 2022. 

“All these interventions do not address Eskom’s core problem: the debt trap,” Sithembiso Garane, Futuregrowth’s head of listed credit, said in a note on Thursday.  “Regardless of the divisionalization and liberalization of the energy sector, a debt solution is still required.”

“Primary energy cost pressure and the inability to contain employee costs continue to pose a significant challenge in the utility expenditure reduction program,” Garane wrote. 

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