"Big Changes Needed for Eskom in Upcoming Budget - Investor Warns Even R200bn Debt Relief is Not Enough"

 "Futuregrowth, a company that invests in government debt, says that the debt relief for Eskom in the upcoming budget needs to be fair to all creditors and significant enough - more than 50% - to make the company financially stable again."

"Finance Minister Enoch Godongwana announced that the government will reduce Eskom's debt by one-third to two-thirds. Investors are eagerly waiting to hear the specifics, which will be revealed in Wednesday's budget. Some possible options include swapping a significant portion of Eskom's debt with government debt, or taking over a set amount of debt each year, such as R50 billion annually."

Futuregrowth, a large investor in government debt, has cautioned that simply reducing 50% of Eskom's debt will not suffice to restore the company to financial stability in the long term. In order to ensure that Eskom can service its debt costs, the debt relief proposed in the upcoming budget must be significant enough and fair to all types of creditors.

 This means that all debt holders should be treated equally, without any one group of creditors being favored or disadvantaged over others. Eskom has several different types of debt, including domestic and foreign bonds, some of which are guaranteed, and loans from development finance institutions, which all have different terms and maturity dates.

Olga Constantatos, head of credit at Futuregrowth, says that the proposed debt relief for Eskom needs to be fair to all creditors, given the complexity of the company's debt with varying loan terms and maturity dates.

She explains that even halving Eskom's debt, which currently has debt service costs of R33 billion, would leave a gap of R5 billion that Eskom would not be able to pay. Constantatos emphasizes that the Treasury needs to communicate the terms and conditions of the debt relief arrangement clearly and manage them transparently.

 She also recommends that the Treasury should have a backup plan if the proposed debt relief plan is not attractive enough to creditors, and that the market should be kept updated regularly.

Olga Constantatos from Futuregrowth also considers the pros and cons of the mechanism that the Treasury may use to provide debt relief for Eskom. She notes that providing a lump sum, such as R200 billion, would immediately help Eskom, but it would be difficult for the Treasury to ensure that the conditions of the relief are met.

On the other hand, staggered relief would be better managed, but it would not provide immediate and significant cash flow relief for Eskom.

Constantatos also warns that providing debt relief alone is not enough to rebuild Eskom's sustainability. It is essential to implement cost-reflective tariffs, increase cost efficiencies, and address municipal arrears.

 Without these measures, Eskom's debt will continue to grow. She emphasizes that bold, urgent, and integrated intervention is necessary for Eskom to become sustainable, and hopes that the Minister will provide this on Wednesday.