Eskom to seek bondholder approval for plan to spread debt load

Eskom, South Africa’s state-owned electricity company, will seek bondholder approval for a plan to spread its R402 billion of debt between three new corporate entities, according to the National Treasury.

The cash-strapped utility has developed a new corporate structure and allocated its debt between proposed generation, transmission and distribution units, the Treasury said in its medium-term budget policy statement published on Thursday. Lenders will have to approve the reorganisation, it said, without giving details.

A transmission company has already been established and registered, and Eskom has a December 31 deadline to complete the legal separation of the entity, the Treasury said. Generation and distribution units will follow “in the next 12 months.”

Eskom can’t generate enough revenue to service its debt and relies on government guarantees to finance its operations. It implemented a third consecutive week of rolling blackouts this week to fix and maintain unreliable power plants, dealing another blow to an economy still struggling to recover from the coronavirus pandemic.

“Eskom continues to pose a significant risk to the public finances,” the Treasury said. “Inadequate electricity supply will remain a binding constraint on economic recovery in the near term.”

The Treasury has given the utility permission to borrow another R42 billion this fiscal year and R25 billion in 2022-23, using an existing government-guarantee facility. The government already guarantees R281.6 billion of Eskom’s debt.