The answers on Eskom’s debt – But not from Eskom
About a month ago, the following questions relating to Eskom debt were put to Eskom and its financial director, Anoj Singh, by EE Publishers. Despite numerous reminders and escalations, no response was ever received. It seemed that in the current public relations crisis, Eskom officials had abandoned any pretence of professionalism in handling media queries.
After reading an analysis of Eskom’s debt by Moneyweb’s Warren Thompson entitled “Government employees are propping up Eskom”, I forwarded the questions to an overseas private sector financial analyst, who came back with the answers below.
What is the level of Eskom’s current debt finance, and its projected debt finance requirements over the next 5 to 10 years? Most of this is not totally transparent, so here is my rough understanding of where things are at. Currently, Eskom has around R350bn of debt financing.
Net debt is around R320bn. Eskom is expected to borrow around R50bn gross per year going forward.
Can you give a breakdown of the sources of Eskom’s current debt finance? At end of the 2015/16 fiscal year, of Eskom’s R322.7bn of debt, R126.5bn was ZAR market bonds, R83bn was DFI (development finance institution) funding, R59bn was foreign exchange market debt, R38bn was export credit, and R4.8bn was commercial paper, with the balance being “other”.
The share of DFI funding and export credit is expected to increase.
Can you give the amount or percentage of Eskom’s current debt finance held by the PIC? We can’t really tell on unlisted stuff and bilateral lending, but out of listed instruments, 43.98% is PIC and other government pension funds, including the Eskom pension fund. I would guess that it is a similar percentage for unlisted direct lending, especially as the private sector pulls back.
I think people focused too much on Futuregrowth’s position last year. There has been a larger, quieter shift going on elsewhere, too. Hence the recent failed auctions of Transnet debt.
Can you advise the amount of debt maturities coming up in the next 3 to 5 years, and whether this presents any challenges to Eskom’s liquidity?
A total of R298bn of Eskom debt is listed on Bloomberg. Of this, some R21.5bn matures by end 2020, and R61.9bn by end 2022. Eskom will have to roll this over at much higher coupon and yield rates, given both its standalone and headline ratings.
Despite all the scandals, I don’t think that Eskom will be blocked from the market, but it will have to pay up significantly if negative perceptions around its management can’t be changed. As such, it may turn elsewhere. The current strategy of shifting to IFI funding (international financial institutions such as World Bank and IMF), DFI, and BRICS funding, may well have to continue as a result.
Fitch said the following for total debt maturities by year, as at end 2015/16 fiscal year:
|Eskom Debt Maturities|
|Debt Maturities||Rand Billion|