PIC proposes converting Eskom bonds into equity – chairman

‘It’s still at the conceptual stage, but it’s a concept that we want to believe … could serve as a chopping block for thinking,’ Khoza said.
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South African state asset manager the Public Investment Corporation (PIC) has proposed converting its Eskom bonds into equity to help the ailing power utility emerge from financial crisis, the PIC’s board chairman told Reuters.

Reuel Khoza said in an interview the PIC had made the proposal to the government several weeks ago after discussing it with its largest client, the Government Employees Pension Fund (GEPF), on whose behalf it holds most of its R90 billion ($5.2 billion) of Eskom bonds.

He described the idea as still “at the conceptual stage” and stressed it would feature a number of conditions, including that Eskom improves its operational performance and governance.

It is unclear whether the GEPF would sanction a debt-to-equity transaction.

The PIC is one of the largest asset managers in Africa, with investments worth more than R2 trillion, including equity stakes in major companies listed on the Johannesburg Stock Exchange (JSE) and debt issued by state companies.

The idea of using the PIC to rescue Eskom, which doesn’t generate enough cash to service its R450 billion of debt and has implemented crippling power cuts that have dented economic growth in recent years, has surfaced before.

Trade union federation COSATU suggested to President Cyril Ramaphosa early this year that the PIC and two local development finance groups invest R250 billion in Eskom via a special purpose vehicle.

Khoza said on Thursday that if the PIC’s proposal was broadened to include Eskom debt held independently by the GEPF and development finance groups owned or part-owned by government, then “if you are creative enough” R150 billion to R200 billion of debt could be lifted from Eskom’s balance sheet.

He said pensioners’ money would have to be safeguarded.

“If Eskom staggers to a fall, … schools can’t function, hospitals can’t function, the bulk of the JSE would wobble… so the Eskom challenge, vexing and complex as it is, is a challenge to the nation and the nation has got to be creative.”

An Eskom spokesman declined comment. The finance ministry said the PIC required no shareholder approvals for its investment activities.

The GEPF said the PIC had a mandate to assess investment proposals, including ones involving Eskom bonds held on behalf of the GEPF, but that “does not amount to the GEPF’s support and or approval … until the GEPF Board makes a specific resolution”.

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Any owner other than the ANC is an improvement.

True but the PIC is hardly a bastion of good corporate governance and is surely infected with many cadres.

PIC is playing with other peoples money.

Is this privatization or semi-privatization?

If the PIC owns Eskom BONDS, it means in interest income source, of well about inflation (…in fact beating ANY interest-bearing fund in SA).

If PIC owns Eskom EQUITY…..problem….(i) will dividends be declared, or held back, and (ii) what share growth prospects are there?

PIC will get the same great return on investment, that Govt/Treasury receives in return for handing over collected tax to Eskom.

(typo) “…above inflation…”

It’s prescribed assets on behalf of Govt employees. Worrysome.

Obviously there many different outcomes from this decision that will depend on the performance of Eskom leadership and the participation (or lack thereof) by unions. When is Eskom likely to declare a profit or dividend given its current situation?

There is only one very high probability outcome. Failure.

Equity value is and will remain zero.

“He described the idea as still “at the conceptual stage” and stressed it would feature a number of conditions, including that Eskom improves its operational performance and governance.” Laughable.

How does giving equity in Eskom serve the long term interests of the PIC’s clients (pensioners and social security recipients)? How dim witted can one be to align the investment and social outcomes of these recipients with the biggest risk in South Africa’s economy?

…I agree with Lemon here, regarding the SA economy’s biggest risk.

And things likely won’t improve in future…but the opposite.

From a strategic, holistic viewpoint, one also has to consider that SOE performance (and most SA institutions) will steadily decline over time beyond the point of failure, where there are insufficient tax revenue from an ever shrinking economy, emigration, etc.
…the so-called “last colonial domino” that is busy falling, slowly taking all its wealth that was built up the past centuries (thanks to gold mostly), with it below the waves to the ‘mean economic average’ representing African values, culture & ethics. It may still take a decades, but ship SA is steadily flooding.

This will fizzle out like the Cosatu proposal. Eskom’s debt hole will not disappear. If the debt held by GEPF is converted to equity part of the big hole will just move to GEPF.

GEPF is up for actuarial valuation as at March 2021. Market movements in the last couple of years, and especially post-COVID, probably mean its funding position is marginal, even before such thorny issues as the valuation of Eskom’s equity (and for that matter, its debt). If its funding level drops below 90% Government has to top it up, as the law stands.

There is always the possibility of reducing the statutory funding level to say, 60%, allowing SOE debt (effectively, in simple terms) to be written off against the surplus, but it’s pointless unless the SOEs are cleaned up first.

LIKE funding Edcon? There is clearly no investment criteria at PIC. Why not start by cancelling BEE coal contracts, cut the labour and collect the outstanding debtors.

Wonderful! Government employees will be the proud owners of a utility in a death-spiral that is used by the ANC as a dumpsite for cadres and to make “charitable donations” to BEE coal suppliers.

This move is similar to using you pension savings to buy a bucket of leaches and let them feed on you. Only a socialist can invent a plan like this! It is divine justice in some way.

I have compassion for all the dedicated, ethical and hardworking government employees who do not deserve this criminal employer.

Actually all South African taxpayers will indirectly become owners, by virtue of the fact that in order to protect pensioners money, we become the guarantee. To add insult, we are told that if we don’t, the whole system will collapse and it will all be our fault. What a sad state of affairs.

Should read “leeches” not “leaches”. My apologies.

One gives Eskom a loan(bond) at a good interest rate return: In response Eskom who cant repay the Loan decide to give you shares in its place :
The shares become worthless and dont pay dividends : You just lost Everything :
Backs my theory : dont put money into anything which the Govt can influence down the line (change the rules)

The loans cannot be called up and the interest is not being serviced.What is their value? Exchange one worthless piece of paper for another worthless piece of paper.

No matter how you try to spin it, this is in fact where the pensioners pay the price for ANC theft and misrule. Desperately sad.

Never any demands made like get rid of the bloated workforce and fix ESKOM and run it like a business before you get any money.

Anything to fill up the trough.

The new CEO that has been “deployed” is the guy that was asleep at the wheel while the PIC stole their money.

“… it would feature a number of conditions, including that Eskom improves its operational performance and governance.”

What comes first? The Chicken or the Egg? Will it mean Eskom will have to prove that they are profitable first? If that is the case, we might have to wait for a very long time before Eskom becomes profitable.

I could not be bothered to even read the text, only comment.
What ever these commies come up with will sooner or later be paid for by taxpayer money.
SAA to be restructured, rebranded = more theft and wastage
Eskom has a new ceo – the cabal will interfere and dictate exactly ala post office and mark barnes who eventually could not take it anymore
What ever they touch turns to garbage

End of comments.

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