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Eskom: PIC bailout could be beyond its remit

Public Investment Corporation (PIC) CEO Dan Matjila has apologised to public servants for the lack of consultation around its loan advancement to Eskom.

The investment company, on behalf of the Government Employees Pension Fund (GEPF), had announced it would advance a R5 billion ($411m) bridging facility to the state-owned power utility for one month to fund the utility’s operations in February.

In terms of the mandate provided to PIC by the GEPF, the organisation is able to buy Eskom debt provided they are backed by a guarantee.

In response, the Democratic Alliance (DA) called attention to the fact that the bridging facility may have violated the organisation’s investment mandate, which bars it from investing in non-investment grade assets.

Why Eskom approached the PIC

The PIC clarified that Eskom had shown it letters of commitment from three commercial banks to provide the funding.

However, the banks needed to satisfy the requirements of internal committees and could not make the funds available until mid-February.

Eskom cited liquidity constraints, which were threatening its operations and going concern status, when it approached the state-owned financier for a loan.

In the six months ended September 30 last year, Eskom’s liquid assets decreased from R30 billion ($2.478 billion) at the end of September 2016 to R9 billion ($7.44 million).

The PIC says it expects that the loan will be repaid at the end of February. It did not disclose the interest rate but said it had insisted on a government guarantee to back the loan. Read more: Eskom: PIC agrees to R5bn bridging facility

The PIC already holds R75 billion ($6.197 billion) in government-guaranteed Eskom bonds; R20 billion ($1.6 billion) in unguaranteed Eskom bonds; and a R3 billion ($247 million) money-market instrument on behalf of the power utility.

Overreaching PIC’s mandate

The DA pointed out that in May 2016, the PIC provided the Standing Committee on Finance with a document that set out the organisation’s investment mandate.

The document states that: “PIC client mandates provide for investing in listed and unlisted instruments with the former allowing solely for investment grade instruments.”

The DA pointed out that all rating agencies rated Eskom below investment grade and that the power utility was downgraded further as recently as January 2018.

Alf Lees, MP and DA Deputy Shadow Minister of Finance, warned: “Worse still, the suggestion by the new Eskom board to convert Eskom debt into equity, in what can only be a fake partial privatisation drive, raises concern that the PIC loan might not be paid back.

“The PIC must now explain how they apparently ignored its mandate by extending a loan to a technically insolvent and junk-rated entity such as Eskom.”


African Utility Week

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