How world sees SA: Fixing Eskom will cost taxpayers BIG TIME!

EDINBURGH — No wonder South Africa's government finds itself caught between a rock and a hard place regarding the nature of both Eskom and its debt, says a London-based sovereign and credit specialist. Writing for the Financial Times, Pavel Mamai cautions that Eskom, a company that is too big to fail, is fast running out of road but no one seems to be tackling the problem. "The government will have to act sooner or later and the longer it waits, the stronger the likelihood of significant policy mistakes along the way, and the more expensive the solution will be," warns Mamai. – Jackie Cameron

By Thulasizwe Sithole

Amid rising fears that the South African economy is stuck with low growth, major financial institutions along with the South African National Treasury have cut their 2018 growth forecasts for Africa's most industrialised economy, says a Financial Times columnist.

"One of numerous issues the government is facing is the financial health of Eskom, South Africa's state-owned monopoly power utility company. The company's semi-annual results announced on November 28 highlight just how daunting this issue is," notes Pavel Mamai, founder of ProMeritum Investment Management, a London-based EM sovereign and credit specialist.

"The company's debt has grown to nearly 15 times its Ebitda (earnings before interest, tax, depreciation and amortisation). Interest payments on this debt consume around 90% of Ebitda. Debt servicing requirements (interest and debt repayment) exceed Ebitda by nearly two times, meaning that servicing existing debt requires taking on yet more debt," says Mamai.

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