Eskom debt could stand in the way of securing external funding

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  • Despite the company's dire financial position, its board of directors are convinced that it remains a going concern.
  • Eskom is looking to source funding of R40.7 billion in 2021, and 48%  has already been secured.
  • The company is optimistic that the lenders had already priced-in its ratings downgrades, and its bleak outlook would not have much impact on its funding drive. 

Eskom's balance sheet is continuing to take pressure from various fronts, including high debt serving costs, as the company is looking for funding of R41 billion for the 2021 financial year.

The long-standing financial challenges of the power utility have been compounded by its downgrade by ratings agencies this year, following the lowering of the country's sovereign rating to junk status. Eskom's poor credit ratings mean the company would struggle to raise capital, and make its debt repayments more expensive.

Speaking after the presentation of the company's interim financial results on Monday, Chief Financial Officer Caleb Cassim said Eskom was in regular contact with the Treasury and the Department of Public Enterprises regarding the company's cashflows as well as its  impending debt maturities.

With R463.7 billion in gross debt, Eskom has a euro bond maturing in January, and another syndicated loan due in February, which Cassim said would be financed through government support.

Interest payments of R36 billion and capital payments of R58 billion are required during the current year, while total interest payments of R142 billion and capital payments of R197 billion are required over the next five years to 2025.

"These repayments can only be met with continued government support."

A total of R6 billion of the R56 billion equity support from government had been received as of 30 September and the parastatal secured 48% of the funding requirements for R40.7 billion for 2021. One of the possible methods of raising the rest of the funds is through a syndicated loan.

"We would have to assess whether the market is conducive for Eskom, following the results we have presented today, but we are comfortable that what is on the table would get us the R1 billion that we are going to raise," said Cassim.

Despite the firm's dire financial position, its board of directors are convinced that its remains a going concern. But securing external funding is going to present another headache for Eskom, given its " saturated borrowing capacity and the recent rating downgrades."

Despite rating agencies Fitch and Moody's having a negative credit forecast for Eskom, Cassim was optimistic that lenders had already priced-in the downgrades, and its bleak outlook would not have much bearing on its fund raising drive. 

Electricity demand

The power utility, which is the largest emitter of greenhouse gases through it's coal-fired power stations is faced with a declining demand in electricity consumption, and CEO Andre de Ruyter said they were looking at exploring negotiated pricing agreements and other avenues to optimise electricity sales to energy-intensive customers and stimulate local sales for the benefit of the economy.

One of areas being explored is the potential of the electric vehicles market, as the world is quickly moving towards cleaner energy sources.

"In the longer term, we think that there are categories of customers that could provide significant incremental demand," said De Ruyter, stating that there is correlation between constrained growth and electricity sales.

Eskom is in talks with the National Association of Automobile Manufacturers of South Africa (Naamsa) and the Department of Trade and Industry on the advantages of driving e-mobility and other technologies available in the sector.

De Ruyter mentioned that car manufacturers in the country were "keen to play their part", given the fact that they are significant exporters to markets that have shown interest in moving away from internal combustion engines.

"With an appropriate support in policy environment and particularly tariff regime, we believe there is an opportunity for us to participate in that market... and contribute to the decarbonisation of South Africa," he added.

The current Covid-19 lockdown has also had a major impact on demand, as key industry operated at reduced capacity in the earlier months of the year or shut down.

As a result Eskom's electricity sales also took a knock. Data released by Statistics South Africa showed real GDP in the nine months of 2020 decreased 7.9% compared to the same period last year.

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