Despite board and management changes at Eskom, its standalone credit profile is still very weak, Moody’s senior credit officer for infrastructure finance, Helen Francis, said at the Investor Service's conference on Thursday.
While its audited statements pegged Eskom as a going concern, the Moody’s rating (B2) is still significantly lower than South Africa’s country rating, Francis said.
Francis was participating in a panel about the credit risks that state-owned enterprises pose to the economy.
Moody’s lead analyst for South Africa, Lucie Villa, said that while government guarantees of Eskom’s debt remained the most popular form of support, equity injections (or bailouts) would have a broader fiscal impact.
'We need to see prosecutions'
"We’ve seen some changes at Eskom and at Transnet. But appointing a new board is not enough.
"Much more needs to happen. The latest results at Transnet and Eskom point to the circumventing of controls – with Eskom’s R20 billion in irregular expenditure and Transnet’s R8bn," said Futuregrowth Asset Management’s Olga Constantatos.
Constantatos was part of the Futuregrowth team which suspended loans to SOEs in 2016, in protest against governance lapses. This occurred amid investigative reports that showed how Transnet and Eskom were at the centre of a powerful state capture network run by the Gupta family and their acolytes.
"We haven’t seen too many dismissals. We need to see prosecutions. We need to see arrests of people who were stealing money essentially from you and me," said Constantatos.
"As bond investors, we are custodians of the nation’s pension funds. We should not be allocating capital to institutions where there is malfeasance, or lend blindly to companies that are not responsible," added the Futuregrowth executive.
Constantatos said government guarantees did not immunise investors against losses incurred from lending to errant state-owned companies.
Ideally, she said, state-owned companies should be judged as standalone entities because they are separate from the government.
'A new will in SA'
Absa’s Head of Public Sector, Stephen Seaka, said banks could not ignore the fact that there was a new will in South Africa after the election of President Cyril Ramaphosa as ANC president in 2017, and that Absa had stepped in.
He believed the government guarantee framework for supporting cash-strapped and struggling state-owned companies would not be breached, he said.
Publicly-owned companies would be in much calmer seas if 31 recommendations made by a high-level panel, led by then-deputy president Ramaphosa, were implemented, Seaka added.
These recommendations included disposing of non-key companies, encouraging public-private partnerships, and combining state-owned companies.
To an extent, some of this is happening. Public Enterprises Minister Pravin Gordhan has announced plans for strategic alignment between SA Express and SAA, with a view to merging.
Eskom has successfully concluded a $1.5-billion bond but investors are still worried about continued government support, the future role of Eskom, municipal debt to the utility, an unsustainable cost structure and whether there will be debt for equity swaps.
The scale of delinquency which got Eskom into the hole it found itself in is telling from the newly minted CEO Phakamani Hadebe’s first actions: 10 senior executives implicated in the capture of Eskom have quit; 11 criminal cases have been opened; 628 disciplinary cases have been finalised; there have been 239 whistle-blowing cases investigated and 122 concluded. In addition, remedial action has been taken against 25 staff doing business with Eskom while lifestyle audits of senior managers are in progress.
Gordhan has changed the boards of Transnet, Denel, SA Express and SAA. He is considering board changes at Safcol and Alexkor too.
There have been significant executive leadership changes at all these companies, but at present, they remain in financial dire straits.* Sign up to Fin24's top news in your inbox: SUBSCRIBE TO FIN24 NEWSLETTER