South Africa’s Eskom Slashes Debt by a Fifth; Bonds Rally

Eskom Holdings SOC Ltd., the beleaguered South African state power utility, reduced its debt by almost a fifth after repaying matured loans and benefiting from a more favorable exchange rate, Public Enterprises Minister Pravin Gordhan said.

Debt fell to 401 billion rand ($29 billion) at the end of March, from 484 billion rand a year earlier, Gordhan said in a webcast speech to lawmakers on Tuesday. The utility has yet to release its financial results for the year.

“The management of Eskom’s debt is one of the key priorities to return the entity onto a sustainable path,” Gordhan said. “The entity is continuing to implement its cost-reduction initiative, with a saving of 13.5 billion rand achieved in the 2021 financial year.”

The yield on Eskom dollar bonds maturing in 2025 fell 29 basis points by 3:15 p.m. in Johannesburg, according to Bloomberg pricing.

New Financing

The utility repaid 65 billion rand last year, raised 15 billion rand in new financing and posted 35 billion rand in foreign exchange gains, Calib Cassim, its chief financial officer, told reporters.

Eskom hasn’t been generating enough electricity to meet the nation’s needs, resulting in intermittent power shortages, and isn’t generating enough cash to cover its operating expenses and interest bill, leaving it dependent on government bailouts to survive.

The government has prevaricated for years over what to do with Eskom’s debt, which is considered one of the biggest threats to the nation’s economy, missing several self-imposed deadlines for its reorganization.

The issue is still being dealt with and “is an interactive process between Eskom, the Department of Public Enterprises and other parties such as the Public Investment Corporation,” Gordhan told reporters. “There are some concrete proposals on the table, but due to Covid and other restrictions we haven’t moved as quickly as we wanted to. The plan is to ultimately move to a sustainable debt solution for Eskom.”

Debt Options

In March, three people familiar with the situation said the National Treasury was considering whether to move a chunk of the debt into a special-purpose vehicle or have the state take over responsibility for it directly. They spoke on condition of anonymity, because no decision had been taken.

The government has said it wants to split Eskom into generation, transmission and distribution units, which will make it easier to manage.

The units will start functioning separately and have their own boards, managing directors and profit-and-loss accounts by the end of June, according to Gordhan. The legal separation of the transmission company will be completed by the end of this year, and the that of the other two units by the end of 2022, he said.

©2021 Bloomberg L.P.

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