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- Despite the company’s dire financial situation, its board of directors is convinced that it is still a going concern.
- Eskom is seeking R40.7 billion in financing in 2021, with 48% already secured.
- The company is optimistic that lenders had already discounted their rating downgrades and its bleak outlook would not have much of an impact on its financing campaign.
Eskom’s balance sheet continues to come under pressure from several fronts, including high debt service costs, as the company is seeking R41 billion in financing for fiscal 2021.
The electric power company’s long-standing financial challenges have been compounded by its rating downgrade by rating agencies this year, following the downgrade of the country’s sovereign rating to junk status. Eskom’s poor credit ratings mean that the company would have difficulty raising capital and making its debt payments 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 cash flows, as well as to impending debt maturities.
With 463.7 billion rand in gross debt, Eskom has a euro bond due in January and another syndicated loan due in February, which Cassim said would be financed with government support.
Interest payments of R36 billion and principal payments of R58 billion are required during the current year, while total interest payments of R142 billion and principal payments of R197 billion are required for the next five years until 2025 .
“These reimbursements can only be met with continued support from the government.”
As of September 30, a total of R6 billion of the R56 billion in capital support from the government had been received and the parastatal secured 48% of the financing requirements for R40.7 billion by 2021. One of the possible methods to raise the rest of the funds is through a syndicated loan.
“We would have to assess whether the market is conducive to Eskom, following the results that we have presented today, but we are sure that what is on the table would give us the R1 billion that we are going to raise,” said Cassim.
Despite the company’s dire financial situation, its board of directors is convinced that it is still a going concern. But obtaining external financing will represent another headache for Eskom, given its “saturated borrowing capacity and recent downgrades.”
Despite rating agencies Fitch and Moody’s having a negative credit forecast for Eskom, Cassim was optimistic that lenders had already discounted downgrades, and his bleak outlook would have little to do with his fundraising campaign.
Electricity demand
The energy company, which is the largest emitter of greenhouse gases through its coal-fired power plants, is facing declining demand in electricity consumption, and CEO Andre de Ruyter said they were looking to explore negotiated price agreements and other avenues to optimize electricity sales. to energy intensive customers and stimulate local sales to benefit the economy.
One of the areas being explored is the potential of the electric vehicle market, as the world moves rapidly towards cleaner energy sources.
“In the long term, we believe there are categories of customers that could provide significant incremental demand,” De Ruyter said, noting that there is a correlation between restricted growth and electricity sales.
Eskom is in talks with the South African National Automobile Manufacturers Association (Naamsa) and the Department of Commerce and Industry on the benefits of boosting electric mobility and other technologies available in the sector.
De Ruyter mentioned that the country’s automakers were “willing to play their part” given that they are major exporters to markets that have shown interest in moving away from internal combustion engines.
“With adequate support in the political environment and in particular the tariff regime, we believe there is an opportunity for us to participate in that market … and contribute to the decarbonization of South Africa,” he added.
The current Covid-19 lockdown has also had a major impact on demand, as the key industry operated at reduced capacity in the first few months of the year or shut down.
As a result, Eskom’s electricity sales were also impacted. Data released by Statistics South Africa showed that real GDP in the nine months of 2020 decreased by 7.9% compared to the same period last year.
