S.African state asset manager proposes Eskom debt-to-equity swap

South African state asset manager the Public Investment Corporation (PIC) has proposed converting its Eskom bonds into equity to help the ailing power utility emerge from financial crisis, the PIC's board chairman told Reuters. Reuel Khoza said in an interview the PIC had made the proposal to the government several weeks ago after discussing it with its largest client, the Government Employees Pension Fund (GEPF), on whose behalf it holds most of its 90 billion rand ($5.2 billion) of Eskom bonds.

He described the idea as still "at the conceptual stage" and stressed it would feature a number of conditions, including that Eskom improves its operational performance and governance. It is unclear whether the GEPF would sanction a debt-to-equity transaction.

The PIC is one of the largest asset managers in Africa, with investments worth more than 2 trillion rand, including equity stakes in major companies listed on the Johannesburg Stock Exchange (JSE) and debt issued by state companies. The idea of using the PIC to rescue Eskom, which doesn't generate enough cash to service its 450 billion rand of debt and has implemented crippling power cuts that have dented economic growth in recent years, has surfaced before.

Trade union federation COSATU suggested to President Cyril Ramaphosa early this year that the PIC and two local development finance groups invest 250 billion rand in Eskom via a special purpose vehicle. Khoza said on Thursday that if the PIC's proposal was broadened to include Eskom debt held independently by the GEPF and development finance groups owned or part-owned by government, then "if you are creative enough" 150 billion to 200 billion rand of debt could be lifted from Eskom's balance sheet.

He said pensioners' money would have to be safeguarded. "If Eskom staggers to a fall, ... schools can't function, hospitals can't function, the bulk of the JSE would wobble... so the Eskom challenge, vexing and complex as it is, is a challenge to the nation and the nation has got to be creative."

An Eskom spokesman declined comment. The finance ministry said the PIC required no shareholder approvals for its investment activities. The GEPF said the PIC had a mandate to assess investment proposals, including ones involving Eskom bonds held on behalf of the GEPF, but that "does not amount to the GEPF's support and or approval ... until the GEPF Board makes a specific resolution". ($1 = 17.3516 rand)

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