Budget Speech: Eskom’s $22 billion debt reorganisation plan – will investors sink or swim?

By Prinesha Naidoo

Investors in South Africa’s cash-strapped power utility are on high alert for Finance Minister Enoch Godongwana’s plan to reorganize its mountain of debt. 

Between one- and two-thirds of Eskom Holdings SOC Ltd.’s liabilities of about 400 billion rand ($22 billion) are expected to be transferred to the state’s balance sheet, with the amount and some of the transfer terms likely to be announced in the national budget on Wednesday. The government guarantees about 80% of Eskom’s loans and 13 of 17 economists surveyed by Bloomberg say it can take on at least half of the utility’s obligations without compromising efforts to reduce state debt and budget deficits.

Reducing Eskom’s obligations will free up funds funds for the utility to carry out plant maintenance and strengthen the power grid, which could lessen the severity of daily power outages. It will also add to the state’s debt burden of almost 5 trillion rand and to its repayment costs, which consume about 18% of main budget revenue.

The National Treasury is expected to make the relief contingent on Eskom meeting performance targets. Godongwana has previously said the transfer of funds to the state’s balance sheet will be staggered and that Eskom’s bondholders won’t be asked to accept losses, which would be tantamount to a default.

Godongwana is due to deliver his budget speech at 2 p.m. local time, detailing the government’s expenditure and revenue framework for the next three years.

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