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South Africa will have to assume Eskom debt, Rothschild says

The debt on their balance sheet is unsustainable.

South Africa faces no choice but to assume some of the debt of its troubled power utility, Eskom, said Martin Kingston, the chief executive officer of Rothschild & Co.’s operations in the country.

The state-owned company has incurred debt of R419 billion ($29 billion), which it is struggling to service, and inadequate spending on maintenance of its power plants has led to a series of scheduled power cuts this month, potentially harming economic growth. It has proposed that the government take over R100 billion of that debt, according to a fund manager who attended meetings with Eskom executives in London.

“The debt on their balance sheet is unsustainable and it can only be addressed by the providers of capital taking a write-off, unacceptably high tariffs or the debt being taken on by a third party” with that being government, Kingston said.

South Africa’s government has said its working with Eskom to resolve the debt crisis, adding any solution should be “deficit neutral” and ruling out the privatisation of some of its assets. Analysts and bank CEOs have proposed solutions ranging from the government servicing Eskom’s debt to the utility selling its newest power generation assets.

Critical utility

“It’s not credible to assume that Eskom could be allowed to default or become a major risk to the system,” he said. “The nettle that needs to be grasped is that we have a critical utility of which the fundamental health of South Africa depends.”

Most of Eskom’s borrowings are guaranteed by the government and taking on more debt could push the country’s credit ratings further into junk. Kingston said he believes ratings companies would have taken Eskom’s debt and the need for a possible rescue by the government into account when making their assessments.
 
© 2018 Bloomberg L.P

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Eskom’s debt is approximately R58 000 per taxpayer (excluding company taxes) to put it into perspective. They did not arrive at this point during the last week. All budget forecasts, trend analyses etc. over many years would have shown that this is their future. To land up at this point is inexplicable and totally baffling. To have increased staff levels while facing pending disaster is even more astounding. There must be something VERY seriously wrong at “management” level. I wish Eskom would tell us how they got to this point. The government does not take over debt burdens, that is a fallacy, it is the citizens of SA who will have to take it over. They will live inside and experience the burden, as they currently experience the burden of government ruin. No matter what party you vote for, you will end up paying for this ruinous undertaking. Who will fix this mess? Removing the debt does not remove the mess, these are two different issues. Imagine if we had to pay for a new nuclear plant at the same time. Where is the energy regulator? I would like to rewrite its strategic objectives. Regulated energy means just that, a constant level of energy. I must be missing something, truth is, one wants to hang your head in shame.

The Wrong is at the political level! The deployment of the avaricious incompetents. This is going to be a tax too far. Mr Macorn of France has just found out why this means. Good luck to foreign investors.

Rothschild & Co. was attracted by the yield, so they lent “recklessly” to a criminal enterprise. As expected, the looters cannot repay the loan, so the lender runs to the mafia boss to take over the debt. The looting by the ANC and Eskom was no secret. The bond investors enabled these criminal activities, they were partners in crime. Now they expect the honest taxpayers to fund the criminal behavior.

Force the bond investors to take a haircut. Give them 10 cents out of the rand. They cannot come out of this mess unscathed. The big financial companies are not toddlers, they knew what they let themselves in for. We as taxpayers did not share in the looting. Let the looters carry the cost of their own decisions. They are getting paid to take the responsibility for their actions.

They lent the money because the state guaranteed it. Your recommended “haircut” would have the effect saying to the world that state debt is very risky in SA, resulting in immediate downgrading of the country by several notches.

@ Hun

“The State Guarnteeed it”….in other words, Zuptas guaranteed it.

I for one am not prepared to pick the tab for this criminal cabal.

@rfjock

‘I for one am not prepared to pick the tab for this criminal cabal’ – so will you leave SA? There’s no other way really to avoid picking up the tab. Alternatively I suggest you become prepared! We all feel like you, but we are stuck in a dark quagmire.

Ahem Sensei, Rothschild doesn’t lend money anymore. You’ve been reading too many conspiracy theories.

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