Eskom in race against the clock

Upcoming coupon payment will be first ‘stress test’.

Eskom is in a race against time to meet the listing requirements of the Johannesburg Stock Exchange, which stipulate the timely release of financial results for companies whose debt or equity trade on it.

This became apparent following an announcement by the JSE on Sens on Monday, which warned investors that unless Eskom releases its interim results before or on January 31, it risks having its securities suspended from trade. Eskom responded with its own Sens saying that it “remains committed” to meeting the requirement.

The utility had previously indicated that publishing of the statements had been postponed to early January 2018 “in order to afford us the opportunity to review the impact of the 5.23% price increase [announced by Nersa] as well as to allow the newly-appointed board members sufficient time to review the financials,” the utility said in a statement on December 21.

It is unclear why assessing the future impact of the Nersa announcement cannot take place in tandem with, and why it is related to, the publishing of financial statements. The bigger issue is that Eskom is capital starved and the grounds on which it can continue as a going concern are in grave doubt.

Besides sustaining its cost base and capital build programme, Eskom also has a “liquidity” event on January 25. This is when the utility needs to pay a coupon (interest payment) to its debt holders of R845 million, investors who own the company’s ES2023 bonds. This is relatively small in the greater scheme of things, but it’s another demand on the utility’s resources at a very precarious time.

Longer term, the company still faces the biggest obstacle to its sustainability – being able to raise capital from local and international debt markets. Eskom has virtually been shut out from raising capital because of its issues around corporate governance, something it has failed to address meaningfully despite it repeatedly being raised by investors and acknowledged by many influential leaders within the ruling party (see tweet below). Instead very little has changed. Matshela Koko has been reinstated, the utility has an acting CEO and CFO that are virtually unknown to the market, and the clock continues to tick.

Eskom is in a self-made crisis. We have Board that lack credibility. We have management that lack credibility. We have inefficiencies that are difficult to quantify. It needs to be fundamentally restructured pretty soon if we have to safe the country from going to the IMF.

— Enoch Godongwana (@GodongwanaEnoch) January 14, 2018