The Public Investment Corporation (PIC) announced on Monday that it is advancing R5-billion to cash-strapped power utility Eskom in the form of bridging finance to fund the company’s operations during February.
The one-month loan, which has been advanced on behalf of the Government Employees Pension Fund (GEPF), is fully backed by a government guarantee.
The PIC said in a statement that the facility was approved after Eskom approached it indicating that it was experiencing “enormous liquidity constraints, which were threatening the company’s going concern status”.
Eskom acting CEO Phakamani Hadebe revealed this month that the utility had secured in-principle commitments from lenders to provide Eskom with the R20-billion it needed to meet debt obligations that would arise before the end of February.
However, Hadebe cautioned that the utility’s longer-term funding plan still had to be finalised and that the utility would assess various funding options, including assets sales, in light of unsustainable debt levels, as well as an indication from government that it was not in a position to inject further funding.
Hadebe indicated that it might even consider approaching other public institutions, such as the Industrial Development Corporation, the Development Bank of Southern Africa and the PIC, with proposals for a debt-to-equity conversion.
In welcoming the PIC announcement, Eskom spokesperson Khulu Phasiwe said the facility indicated that the "market is now warming up to the new Eskom board and management" and that the utility was hopeful that more credit facilities would be secured soon.
In its statement, the PIC revealed that three commercial banks had indicated their willingness to further extend credit facilities to Eskom, subject to the outcome of their respective due diligence processes, which were under way. The identities of these banks was not disclosed.
“To date, Eskom has demonstrated that it has secured financial commitments to meet its borrowing requirements over the short term,” the PIC said, adding that the pricing for the bridging-loan transaction was favourable to the GEPF.
The decision to provide the facility followed from the PIC’s own due diligence, as well as changes to the Eskom board, which it described as encouraging.
“The GEPF and the PIC are encouraged that the new Eskom Board and the new management team have moved with the necessary speed to restore good corporate governance at Eskom. The utility announced their interim financial statements last week, which had previously been delayed, in a frank and transparent manner,” PIC CEO Dr Daniel Matjila said.
Eskom’s financials deteriorated in the first half of its 2017/18 financial year, with net profit falling to R6-billion from R10-billion in the corresponding period of 2016/17, while liquid assets shrunk from R30-billion to R9-billion over the same period. The group’s debt rose to R367-billion and its debt-to-equity ratio deteriorated to above 70%.