State-owned electricity producer Eskom says it should end its current financial year with a cash balance of between R10-billion and R15-billion and that its liquidity outlook for its 2016/17 financial year has also improved, with its funding requirement having narrowed from R47-billion to around R30-billion.
However, the utility still faced a material funding gap of R280-billion over the medium term and was looking at various mechanisms, including the issuance of an international bond, to help address the shortfall.
CEO Brian Molefe reported last week that the prospect of a global bond had been canvassed during a nondeal roadshow to the UK early in November and that “it sounds like the market would be receptive to an international bond issue”.
Molefe offered no insight into the possible size of the bond, which Reuters reported could be as large as $1-billion, with FD Anoj Singh saying only that the issuance could take place before the end of Eskom’s current financial year, which ran until March 31, 2016.
However, Singh also stressed that the bond decision would depend heavily on market conditions and that Eskom was, therefore, also preparing a syndicated loan facility as a ‘plan B’.
The utility’s immediate liquidity had been buoyed through an equity injection of R23-billion by the South African government, which had been financed through the sale of government’s stake in telecommunications group Vodacom.
Facilities approved by the Multilateral Investment Guarantee Agency and the African Development Bank had also helped improve the immediate liquidity position of the group.
“Taking into account all these funding facilities, we should end the year with a cash balance in the region of R10-billion to R15-billion,” Singh said.
Ending the 2015/16 financial year with a positive cash balance would also result in an overall reduction in Eskom’s 2016/17 funding requirement, which would fall to around R30-billion.
The utility aimed to meet that requirement through a combination of a R10-billion private placement, the global bond issuance or syndicated loan, the liquidation of the Duvha insurance claim (the value of which was close to being confirmed) and a claw-back through the tariffs of R22.8-billion Eskom believed was due to it owing to an underrecovery of revenue during the first financial year, or 2013/14, of the third multiyear price determination (MYPD3).
The MYPD3 runs for five years, from April 1, 2013, to March 31, 2018, and the application for 2013/14 had been made through the Regulatory Clearing Account (RCA) mechanism allowed for by the National Energy Regulator of South Africa (Nersa).
Should Eskom succeed in its RCA claim, electricity tariffs could rise by close to 17% from April 1, 2015, instead of the 8% already sanctioned for the year by Nersa, and Singh indicated that future RCA applications would follow for the subsequent financial years, falling within the MYPD3 control period.
“If the RCA is successfully concluded, that will contribute quite significantly to the balance of the funding requirement [for 2016/17].”
The RCA application was submitted to Nersa on November 10, published on the Nersa website on November 13, and the regulator was likely to hold public hearings ahead of a final determination.