Registered users can save articles to their personal articles list. Login here or sign up here

Eskom should rely on bond market, Mboweni says

Rather than turning to the government for bailouts.

Cash-strapped power utility Eskom should rely on bond markets to raise the funds it needs rather than expecting bailouts from the government, finance minister Tito Mboweni said.

Eskom’s debt has soared to R419 billion, while sales volumes have dropped as businesses and residential consumers go off the grid because of unreliable supply and rising costs. It began imposing rotating power cuts last week as inadequate spending on maintenance has reduced the ability of its power plants to generate electricity. It has also run low on coal, from which it produces most of its power.

Eskom “must go to the market and raise money,” Mboweni said in an interview with Bloomberg Television on the sidelines of the G20 Summit Saturday. “There’s a limit to what we can do, but nevertheless we have provided guarantees.”

While ratings agencies have flagged Eskom as a key risk to the South African economy, the utility, which sold $1.5 billion of Eurobonds in August, tapping international markets for the first time in more than three years, is still a strategic and productive asset, according to Mboweni.

“They have got bonds so they can approach the markets, as long as they use that cash so raised in a productive and fiscally responsible manner,” he added.

Rotating blackouts

The state-owned utility which produces most of the country’s electricity announced a fourth consecutive day of controlled power cuts on Sunday, trimming as much as 2,000 megawatts of supply from the grid over 12 hours. The rotational blackouts could be imposed for as long as six months, the utility has said.

Eskom’s woes are emblematic of the decline of South Africa’s state companies during the nine-year rule of former President Jacob Zuma, during which corruption surged.

“We are going to reconfigure state owned enterprises and I further said there will be no holy cows in the process,” Mboweni said. “Its very clear that it cannot be business as usual and we have to take bold steps to move the country forward. The fiscus is not in a position to continue pouring money into assets which are not productive. This is like pouring water into a sieve and hoping that its going to fill up.”

South African Airways is another state company that’s struggling to fund itself.

“There are discussions about what we need to do, one to get the airline on a better footing if we can, two if we can’t then what needs to be done?” he said. “Can we reconfigure it, can we keep it as it is, can we sell it, can we close it.”

The decision will need to be made by President Cyril Ramaphosa, he said.

My preference is “in my back pocket,” Mboweni said. “He knows my position.”

© 2018 Bloomberg L.P

Get access to Moneyweb's financial intelligence and support quality journalism for only
R63/month or R630/year.
Sign up here, cancel at any time.

COMMENTS   21

To comment, you must be registered and logged in.

LOGIN HERE

Don't have an account?
Sign up for FREE

Quote,
Eskom’s woes are emblematic of the decline of South Africa’s state companies during the nine-year rule of former President Jacob Zuma, during which corruption surged.

Former struggle hero,s wanted the role as state captain of ship enterprise named South Africa. The pariah state for one reason only.
By assuming intellect depends on skin color. Stupid and degrading for anyone other as white.
Taken over, this country started on the road to become true African.
Many years later the results can be read as successful. All signs of superior state and private owned enterprises are now in terminal decline. This achievement can not be blamed on one men named Zuma.
Total commitment of the leading political party played a major role in this grand world success to become true Africa, not great, again.

How in the name of Jesu do you run out of coal in SA?

Only a cadre could get that right.

Only because you don’t have money to buy coal. Who’s going to buy bonds of an entity that can’t afford to repay? Only way investors will be interested is if the Govi guarantees the debt, so how’s that different to a bailout?

Not being an expert in this, it does seem possible; apparently the quality of coal needed by Eskom is mostly exported where more money is earned than in the local market.
Then there’s other factors like state capture that took place, etc.

It’s a huge pity the new CEO Mr Hadebe didn’t get backing when he said NO salary increases this year for anyone at Eskom! The lack of backing by Pravin Gordhan was obviously all about votes for the ANC next year.

If there is a way to screw it up the ANC and friends will find it.

What The Fark !!!
Who in his right mind (with basic math literacy of course) would invest in this piece of shite???

Can’t argue with this and those Futuregrowth jitters a little while ago could indicate that quite a few people share your sentiments. But money is pouring in from all sorts of “savings” and “retirement” schemes and must find a home. Government needs to be kept sweet or it turns nasty, as a number of examples have shown. Besides, for the big boys, it is never their money anyway; that is safely tucked away, well away from SA. So, provided there is herd concensus safety and some “safeguards” in the form of Gordhan SA taxpayer guarantees, plus high end returns, there will be money for these SA SOE “shells”.

But, somewhere, the music might stop and those without chairs will suffer; the SA taxpayer and saver front of the suffering.

Stop talking and start doing! Otherwise we’ll just do it for you and cut out Eskom completely.

For the bond experts : what would the coupon on a new 20 year Eskom bond be priced at? Without please note, a state guarantee.

An Eskom bond is a lotto ticket with the payout capped at the value of the initial investment. If you win the lotto, you only get your money back. Eskom is a bankrupt utility, backed by a bankrupt government, backed by bankrupt voters.

An investment in Eskom bonds is a tax on people who can’t do math.

“We are going to reconfigure state owned enterprises and I further said there will be no holy cows in the process,” Mboweni said. “Its very clear that it cannot be business as usual and we have to take bold steps to move the country forward. The fiscus is not in a position to continue pouring money into assets which are not productive. This is like pouring water into a sieve and hoping that its going to fill up.”

Blah blah fishpaste, all vague and unspecific because he has no real solutions, just the usual trotting out of tired catchphrases.

Eskom’s financial problems stems from its massive debt burden. Solution? Borrow more. I do not understand this. And to think the managers making these dumb decisions are rewarded at R30 million per year.

The more I hear Tito talk, the more I realise that any success he may have had is firmly attached to his predecessors coat tails. To invest in Eskom bonds is to expect profits over a period while exponentially increasing the price of electricity over that same period. Because that is the only way Eskom will be profitable enough to pay you. It’s like trying to solve the water crisis by filling the dams with a hose pipe from your home.

Allow Tito Mboweni a bit of space and time to do something, he at least plans (or recognizes it must be done) to reconfigure state owned enterprises and he seems to know that no punches can be pulled (no holy cows). If it is’nt done, well, the answer is clear to all.

ok so eskom must go and borrow at 15% plus. It cant service its debt as is how will it be able to do so when it doubles its coupon? What Eskom needs is a recapitalisation involving the private sector. Mboweni is starting to concern me a lot. He is a loose cannon acting tough without thinking things through.

How did you calculate 15 % plus?

Eskoms Eurobond falling due in 2025 currently has a yield of +/- 8% – in hard currency not ZAR. SA 20 year (ZAR) govies are tradeing at a +/- 7% spread to US 20 year treasuries. So if Eskom wants to borrow in ZAR 15%. It can borrow cheaper (and does so) in hard currency but that is misleading, I believe, as over time currency weakness accounts for the difference and it is a risky strategy as your cashflow is ZAR based.

Well, they can borrow at around 10 % pa in 12 m Libor market (fully covered 12 months forward).

The US/ZAR interest rate gap is static at the moment. These loans could be rolled over yearly. I added an 0,75 % country margin on the Libor spread…this os how we funded Esksdom cheaply for many moons!

Load All 21 Comments
End of comments.

LATEST CURRENCIES  

USD / ZAR
GBP / ZAR
EUR / ZAR
Insider GOLD
ONLY R63pm

Moneyweb's premium subscription is a membership service which will give you access to a number of tools to take charge of your investments.
Or choose a yearly subscription at R630pa - SAVE R126

Get instant access to all our tools and content. Monthly subscription can be suspended at any time.

Podcasts

SHOP NEWSLETTERS TRENDING CPD HUB

Follow us:

Search Articles:Advanced Search
Click a Company: