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Bondholders worried about Eskom’s delayed interims

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As questions surrounding Eskom’s delay in releasing its interim results swirl, investment manager Futuregrowth Asset Management said yesterday that Eskom’s failure to release the results within stipulated time lines raised concerns among bondholders.

PUBLICATION: BUSINESS REPORT | WRITER: SISEKO NJOBENI | DATE: 17/O1/2018 

The JSE this week threatened to delist Eskom bonds if the utility did not release the interim report by the end of this month. Eskom subsequently committed to release the report by then. Local asset managers who hold Eskom bonds are likely to be watching the developments closely with concern.

“Investors should rightly be concerned when any bond market issuer is unable to produce financial statements within the prescribed period, and it is entirely correct for the JSE to ensure standards are maintained. 

"Otherwise what is the point of listing requirements and investor protections?” said Futuregrowth Asset Management chief investment officer Andrew Canter yesterday.

Canter said Futuregrowth had maintained its investment freeze on Eskom as it is yet to conclude a governance review of Eskom. In 2016, Futuregrowth announced that it would no longer fund state-owned companies Eskom, Transnet, South African National Roads Agency (Sanral), Landbank, Development Bank of Southern Africa (DBSA) and the Industrial Development Corporation (IDC).

Canter said the company imposed the ban until it could conclude satisfactory governance reviews. “During (the fourth quarter of) 2016 we assessed and reported that we would re-commence lending to Land Bank, IDC and DBSA. During 2017 we concluded our Sanral review and indicated we had some concern with the board size, skills, and stability, and that we might recommence limited funding (for example) possibly providing short-term finance,” he said.

In order to finance its funding requirements, Eskom issues debt in the domestic and international capital markets. Along with export credit agencies and development finance institutions, the Eskom bonds are an important source of funding for Eskom. Canter said Futuregrowth has had discussions with Eskom “but subsequent public reports and events overtook our ability to meaningfully conclude our assessment - as we are not forensic auditors. In short, it was not practically possible to conclude a governance review nor to indicate that we would recommence lending to Eskom - accordingly, we have not recommenced lending to Eskom.”

Engagement

He said Futuregrowth continued to have a “productive and co-operative” engagement with Eskom about governance, notably on reporting requirements and the terms of Eskom's listed bonds. Shareholder activist Theo Botha yesterday said the delayed release of the results was indicative of lack of transparency, fairness and accountability.

Eskom has said that it has delayed the release of the interim results because it wanted to review the impact of the 5.23percent tariff increase that the National Energy Regulator of South Africa (Nersa) granted Eskom. It said the utility’s newly-appointed board members also needed time to review the financials. Botha was dismissive of the reasons for the delay. “I do not understand their reasoning. It is illogical. What is holding them back from releasing the results? Is it the board, the chief financial officer or government?” he said.

In a so-called shareholder report for the six months to end of September last year, Eskom confirmed that its liquidity position in that period had deteriorated. The liquidity measures the extent to which Eskom has cash to meet immediate and short-term obligations. According to the report, Eskom’s group revenue of R95.5billion was R3.7bn lower than budget.

Eskom attributed the drop to lower than anticipated electricity sales volumes. In the report, Eskom said it was concerned that cash from operations and debt raised was not sufficient to meet asset acquisition and debt service requirements.

Read the original article here.

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Eskom / bonds / Andrew Canter