Take-home pay increases slowest in 5 months

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Johannesburg- Take-home pay and private pensions started off 2018 on a stronger footing than in 2017, according to data measured by BankservAfrica, signalling an improvement in consumer confidence could lie ahead.

South Africa’s average formal sector take-home pay was R14 675 in January, representing a 5.8% year-on-year growth and a 1.2% increase if seasonally adjusted for inflation.

January’s take-home pay was the slowest increase in five months, but BankservAfrica said on Wednesday that the figures in recent months reflect a positive real increase for money banked by employees. This points to a gradual rise in living standards for most formally employed people.

The BankservAfrica Take-home Pay Index is a reflection of pay trends in the formal economy paid via the South African payments system.

The number of people earning monthly between R12 000 and R16 000 was 474 700 in January, while 436 900 earned below R4 000. This income bracket saw a decline of 7.8% during 2017, and the number of higher paid employees now outnumber lower income earners.

BankservAfrica doesn’t expect the national minimum wage of R3 500 per month, which is expected to be implemented from 1 May 2018, to have much of an impact on formal sector salaries processed through the formal payment system.

Pensions growing faster than take-home pay

The Private Pensions Index shows that pensions increased substantially year-on-year in January as the average pension reached R7 072. Stripping out inflation, this represents an increase of 4.8% or a pay out of R4 654 for a typical (median) pensioner – the biggest rise since September 2015.

Pensions in January came closer to catching up with salaries, with the average South African pension paid reaching 48.3% of the average take-home pay for the first time since BankservAfrica started measuring pension data in 2012.

Pensions are becoming increasingly important to the economy as pension pay outs have increased faster than take-home pay in the majority of 2017. The number of pensioners is also increasing and, according to data from Statistics South Africa, the population bracket of people over 65 years of age is experiencing the fastest growth.  

BankservAfrica said that, while it’s impossible to predict data into the future, the lower inflation expected in the first three months of 2018, “bodes well for the chances of positive after inflation increases for both take-home pay and private pensions”.

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The fight against the VAT hike is on

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Cape Town – Several NGOs, trade unions and political parties are gearing up to fight the increase in the VAT rate as well as other taxes.

Last week former finance minister Malusi Gigaba announced in his Budget Speech that the VAT rate would increase one percentage point to 15%.

The news was not received well by labour unions and other industry bodies.

Political party the DA has developed its own plan to fight the hike through parliamentary processes. Speaking at a briefing at Parliament on Wednesday, MP Alf Lees explained that the DA will give its inputs for certain bills.

Lees also reiterated previous statements by the DA that the increase in VAT would add to the burden of the poor.

“Tax increases could be avoided through targeted intervention, such as a comprehensive government expenditure review, to ensure that expenditure is brought down to manageable levels and waste is stopped as a matter of urgency,” he said.

The DA has launched a national petition against the VAT increase and other taxes as well.

The Congress of South African Trade Unions (Cosatu) has also criticised government’s approach to increase taxes in order to fix its “budget crisis”.

Cosatu presented its concerns at the public hearings of the budget at Parliament on Wednesday.

“Cosatu rejects and condemns the VAT and fuel hikes in the strongest possible terms and calls for Parliament to defend workers and reverse them,” the federation said in its written submission.

“We would have at least expected government to announce an increase in the number of basic foods that would now be VAT exempt as a gesture to assist workers to cope with the VAT, fuel and income tax hikes.”

Cosatu also believes the 52c/l fuel hike will force businesses and retailers to pass the tax increase on through price hikes.

Cosatu wants government to cancel the VAT hike and reduce fuel levy hikes, among other things.

VAT hike regressive

Several other civil society organisations also submitted to Parliament that the VAT hike will make the tax regime more “regressive” and stands to “exacerbate already unacceptably high levels of poverty and inequality”.

In their presentation, the groups which include Equal Education, Section27 and the Institute for Economic Justice, argued that the cumulative share of indirect taxes paid by the lowest 70% of income earners exceeds their cumulative share of disposable income.

They further stated that the poor aren’t adequately shielded from a VAT increase through existing zero rating measures using data to indicate that less than half of the poor’s food basket is spent on zero-rated goods and other items should be included in this category, such as canned beans, margarine and soap.

The organisations pointed out that an increase of VAT to 15% will also cost the state more in its purchase of goods and services adding to the pressure facing the public sector, which is already experiencing budget cuts.

The groups propose that the ad valorem excise duties on luxury goods (such as golf balls) be increased and the number of items included in this category also be increased.

They also want Treasury to expand the zero-rating category to include more items commonly used by low-income groups, with particular attention to the needs of women and children.

The NGOs believe that tax breaks which benefit higher income households (such as pensions and medical aids) should be reduced.

They disagree with Treasury’s assertion that South Africa’s personal income tax rate (40-45% for higher income earners) and the corporate tax rate (28%) are high enough and encourage an increase to these as well as property taxes.

Pressure to pass budget

The civil society organisations asked MPs to withhold approval of the budget proposal of a VAT hike to 15% and to create a more meaningful public participation processes for the budget, with longer timeframes to allow for greater engagement.

In a joint statement on Tuesday the chairpersons of the Standing Committee on Finance and the Select Committee on Finance said that they sympathise with concerns about the short time frame for the public to prepare submissions about the Budget Speech.

However, the chairs said that in terms of the legislation, both Houses of Parliament have to finalise the fiscal framework within 16 days of the budget being introduced to Parliament, in order to meet the deadline for the new financial year of April 1.

The submissions to Parliament on the VAT increase are ongoing and Treasury will reply on Friday. The committees will then decide on a way forward.

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Secondhand smartphone market takes off, but far from green

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Barcelona – Thanks to a fast-growing secondhand market, smartphones are increasingly being re-used, but large-scale handset recycling is not happening as the industry struggles to go green.

Thrown in the thrash or left abandoned in a drawer, the fate of mobile phones – which consumers replace on average every two years – is starting to change amid growing criticism over their environmental impact.

“People love technology – the upgrades, the unboxing, the new features,” the EEB network of environmental groups in Europe said in a statement as the world’s largest mobile phone fair opened in Barcelona.

“But there’s a dirty side to our tech obsession: trainloads of e-waste trundling out of our cities and towards hellish waste dumps in Africa and Asia.”

Growth in reused mobiles 

According to a recent UN report, small devices like smartphones represented 9% of all e-waste in the world in 2016, up from 7% in 2014.

But things in the mobile sector are slowly starting to change.

“There is very strong growth in the reused phone market,” said Bertrand Grau, a technology analyst at Deloitte, which forecasts sales of second hand mobile phones will expand by 20% a year between 2015 and 2020.

The surge in sales of secondhand phones – which may just need a change of battery or screen – is being fuelled in part by consumers, who are reluctant to dish out more money for new models that offer little innovation.

READ: Apple admits it deliberately slows iPhones as batteries age

“Phones are becoming more and more expensive, more than €1 000 for the iPhone X, but the established brands are attractive so people prefer to buy a refurbished Apple phone rather than a cheaper Chinese brand,” said Grau.

As such, mobile brands and operators are increasingly offering phone exchange programmes. Consumers can turn in their old model to get a discount on a new one or cash.

 READ:7 ways to put your smartphone on a data diet

“Today this has become almost a mainstream practice around the world,” said Biju Nair, the head of Hyla, a Texas-based firm which helps the industry collect and repurpose used phones and had a stand at Barcelona’s Mobile World Congress.

Hyla and other such firms provide operators with software that checks the state of the phone, makes sure it was not stolen, erases all the data on the device and makes it reusable.

French start-up Volpy, meanwhile, has created an app that buys phones directly from consumers and sends a courier to fetch the handset.

“We realised that smartphones that had significant market value were not recycled, even though there was an interest for consumers to do so,” said Volpy head Marc Simeoni.

Phone design

The system is still in its infancy. Only 7- to 15% of smartphones sold in France, and 20- to 25% of those sold in North America, are reconditioned.

But “it’s a first step to responsibly handling phones”, said Elizabeth Jardim, an e-waste specialist with the US branch of Greenpeace.

“We advise to keep the phones in use for longer, whether it is the original owner, or whether it’s a second-hand owner” since this reduces the amount of energy and raw materials used to make a new one, she added.

A smartphone is made up of about 50 different materials, including rare materials that are sometimes extracted from nations in conflict like the Democratic Republic of Congo.

Manufacturing smartphones also requires a huge amount of energy, often fossil fuels, since 60% of them are made in China where coal remains the main source of energy.

And only about 20% of all e-waste – defined as anything with a plug or a battery – is going in the official collection and recycling schemes, according to a UN report.

“One thing that makes it difficult is the way the phones are designed. They’re incredibly fragile, for instance the glass they use for the display. Often, the phones are designed to be difficult to be repaired,” said Jardim.

Faced with these problems, efforts by major brands remain slim.

Technology giant Apple said last year it wants to “one day” end the need to mine materials from the earth to make its gadgets. It has melted down iPhone aluminium enclosures to make mini computers used in its factories.

And under pressure from Greenpeace, Samsung agreed to recycle the Galaxy Note 7 smartphones it was forced to recall in 2016 because of problems with its battery.

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Steinhoff announces fall in revenues

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Cape Town – Embattled SA retailer Steinhoff announced on Wednesday in a trading update that its revenues for Q1 2018 had decreased by 5%.

The global retail conglomerate published its unaudited results for the three months ended 31 December 2017 at 17:30. 

Revenues for Q1 2018 were 4.86bn, down from 5.1bn in Q1 2017.

Heather Sonn, the acting chair of the Stellenbosch-headquartered furniture and household goods company, said the group could not yet give a more in-depth overview of its financial situation. 

“There are legal and other constraints on what we are able to communicate at this time and we are as frustrated as you must be that it is not yet possible to provide more information,” she wrote.

She said that a forensic investigation into the group’s finances by PwC was still on-going, saying it was essential that PwC be given enough time to “determine pricisely what has taken place”.  

The international retail group has been under a cloud since its former CEO Markus Jooste stepped down in early December amid a still-ongoing accounting scandal. 

Since its share price crashed in the wake of Jooste’s abrupt resignation, some R200bn in shareholder value has been erased. 

Steinhoff shares closed at R5.80 on the JSE Wednesday, over 85% down from the day before Jooste stepped down. 

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Consistent theme of support for SMEs in SONA, Budget 2018

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Cape Town – It is positive to have a consistent theme of support for small and medium enterprises (SMEs) in both the recent State of the Nation Address and in Budget 2018, according to Ben Bierman, managing director of Business Partners Limited.

To him that is proof of government being serious about the growth and well-being of SMEs in South Africa.

“Highlighting this is government’s commitment to the preferential procurement regulations, as well as the fact that the Public Procurement Bill will be submitted to Cabinet in March 2018 for gazetting for public comments,” said Bierman.

“These regulations will ensure that SMEs are able to participate fairly in the public procurement process, which will in turn promote black economic empowerment, industrialisation and allow SMEs to create more job opportunities.”

In his view, it is also key to note that a directive will be issued to all government departments and public institutions next week, instructing them to pay suppliers on time or be charged with financial misconduct.

“This is crucial to the survival of a small business as late payment has a direct impact on a business’ cash flow and the speed of its cash conversion cycle, which ultimately impacts its overall profitability,” said Bierman.

He added that the announcement of the revised Financial Sector Codes and the Black Business Growth Fund created through the code will have a significant impact on black businesses growth.

“This initiative is expected to dramatically improve access to funding for black-owned businesses which previously may have had difficulty to obtain this kind of funding. We are confident that the initiative will impact transformation and look forward to witnessing its implementation,” said Bierman.

Commenting on provisional allocation of R2.1bn to the SME Incubation Fund announced in the mini budget, Bierman pointed out that although this is a positive initiative, it is disappointing that it will only begin operating in 2019/20, as SMEs need support now more than ever.

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Eskom ratings downgrade result of failure to hold anyone to account – OUTA

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Cape Town – The downgrade of Eskom by S&P Global Ratings reflects the state’s failure to hold executives and board members to account, the Organisation Undoing Tax Abuse (OUTA) said on Wednesday.

On Wednesday S&P downgraded Eskom to “substantial risk” as an investment with warnings of possible default.

To OUTA this illustrates the results of what the civil rights body deems to be “massive, systematic mismanagement of Eskom and the state’s failure to do anything to hold executives, boards or those implicated to account”.

In OUTA’s view, the failure to hold the corrupt to account is leading to the collapse of crucial institutions like Eskom.

“It is essential that the Hawks and the National Prosecuting Authority take action without fear or favour against senior public officials like Anoj Singh who are implicated in corruption,” said Ben Theron, OUTA’s chief operating officer.

“South Africans should not be expected to have to pay substantial increases in electricity prices and to have to foot further state bailouts for Eskom because of financial mismanagement and looting by failed executives who are allowed to avoid accountability.”

Singh resigned as Eskom CFO in January pending a disciplinary hearing. In OUTA’s view he left a trail of unanswered questions on Eskom’s financials.

OUTA would like to see those implicated in wrong-doing prosecuted, the reasons for losses established and the missing money sought.

“Singh was instrumental in the siphoning of funds out of Eskom coffers for the ultimate benefit of the Guptas, so OUTA wants Singh to face both criminal charges and civil action to recover the ill-gotten funds,” says Ronald Chauke, OUTA’s portfolio manager for energy.

Resigning should not allow him to avoid prosecution, in the view of Theron.

During the parliamentary inquiry into Eskom, then MP Pravin Gordhan told Singh that he had been part of bringing Eskom, the biggest utility in Africa, to its knees.

In August 2017, OUTA laid charges of corruption and financial misconduct against Singh at the Randburg police station. In September, OUTA filed a complaint against Singh with the SA Institute for Chartered Accountants (SAICA), to have him barred from practising as an accountant or CFO. Neither case has been finalised.

The Eskom Inquiry resumed on Wednesday, hearing evidence from former Eskom executive Abram Masango, who was suspended last year.

He testified that he was requested to attend a meeting in March 2015 with former top Eskom executive Matshela Koko at Melrose Arch in Johannesburg. Masango said here they met with Salim Essa, a friend and business associate of the Gupta family, and discussed the suspension of four Eskom executives.

He told Parliament on Wednesday that Koko appeared to have conferred with Essa when making staffing decisions at the power utility.   

Koko, who previously served as power utility’s acting CEO and head of generation, resigned from Eskom two weeks ago, while still proclaiming he was innocent of any wrongdoing.

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How Ramaphosa’s Cabinet reshuffle could benefit consumers

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Johannesburg – George Herman, director and chief investment officer of specialist wealth management company Citadel, says South African consumers may benefit from lower inflation and interest rates if recent political changes boost economic growth. 

On Monday night President Cyril Ramaphosa announced his new Cabinet, which includes Pravin Gordhan as minister of public enterprises, Nhlanhla Nene as minister of finance, and Gwede Mantashe as minister of mineral resources.

Herman said levels of optimism around Ramaphosa and his newly elected Cabinet have not been seen since 1994. “He (Ramaphosa) has immediately started delivering by ringing in changes at state-owned enterprises and now the Cabinet. This engenders trust,” he said. 

The trust that Ramaphosa has instilled in the country since his appointment has already benefited the economy, Herman said, with a stronger currency and foreigners buying more than R10bn worth of bonds last week.

Investor sentiment will be boosted even further if and when the reviewed Mining Charter is renegotiated. Ramaphosa intervened in the Mining Charter matter shortly after his inauguration, to assure the Chamber of Mines that the controversial charter would be looked at again. As a result, a court case between the chamber and former mining minister Mosebenzi Zwane has been postponed by mutual agreement.

“Capital is bound to flow into the country as policy certainty is attained and corruption made a swear word again,” Herman said.

He said if an amicable renegotiation of the Mining Charter is conducted, it would “stimulate economic growth by some 1%, but possibly even 2%, which would take our growth to the 3% level”.

Furthermore, with the economy growing Herman said the average South African consumer will gain from the stronger rand which will keep inflation rates low.

He added that with a firmer local currency, the South African Reserve Bank may also reduce interest rates.

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US Fed chair’s testimony drags global equity markets

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Cape Town – Global equity markets, including the JSE, came under pressure on Wednesday following new US Fed chair Jerome Powell’s testimony before lawmakers on Tuesday.

The equity rout started in the Dow Jones and S&P 500 indices in the USA which closed 1.16% and 1.27% lower respectively on Tuesday, continued in Asian markets trading on Wednesday where the Nikkei and Hang Seng lost 1.44% and 1.36% respectively. The JSE wasn’t spared as most of the blue chip constituents traded under pressure.

The US Fed chair hinted at a gradual increase in interest rates as well as shrinking the Fed’s balance sheet to normal levels. He also hinted that he did not expect the strengthening US economy to be derailed by the recent sell-off in equity markets.

The jitters in the financial markets were mainly as a result of the perceived likelihood of at least four rate hikes from the Fed this year, as well as the disappointing Chinese manufacturing data released on Wednesday morning.  

On the JSE, big gains were recorded in Balwin Properties [JSE:BWN], Brait [JSE:BAT] and Sasol [JSE:SOL] which ended the day up 9.51%, 3.77% and 2.85% respectively. Balwin Properties ended the day firmer despite the release of a trading statement earlier in the day which highlighted tough operating conditions. Bidcorp [JSE:BID] and Assore [JSE:ASR] added 1.07% and 5.53% respectively.

However, the overall trend for the local bourse was mainly downward and the biggest losers included SA Corp Real Estate [JSE:SAC], NEPI Rockcastle [JSE:NRP] and Resilient [JSE:RES] which lost 11.70%, 5.00% and 7.31% respectively.

Mining stocks Anglo American PLC [JSE:AGL] and AngloGold Ashanti [JSE:ANG] traded weaker to shed 2.87% and 2.55% respectively, whilst retailers Truworths [JSE:TRU] and Mr Price [JSE:MRP] lost 2.74% and 2.59% respectively. Financials MMI Holdings [JSE:MMI], and Nedbank [JSE:NED] lost 2.06% and 3.62% respectively.

The JSE All-Share index eventually ended the day 1.19% lower, whilst the JSE Top 40 index lost 1.25%. It was mostly carnage across most of the major indices as they mostly traded weaker. The Industrials index lost 1.20% and the Resources index shed 0.96%. The biggest loser of the day was the Financials index, which lost 1.50%.

Brent Crude traded marginally firmer as it gained just over 0.1% to peak to an intra-day high of $66.81/barrel. Just after the close it was recorded at $66.71/barrel, up 0.12% on the day.

The strengthening of the US dollar resulted in gold trading weaker earlier on. However, the precious metal managed to pair the losses and traded firmer to reach an intra-day high of $1 322.55/Oz. When the JSE closed gold was trading at $1 318.42/Oz.

Platinum traded mostly softer on the day, but it did spike towards the JSE close to reach a day’s high of $986.87/Oz. It retraced to trade flat just after the close at $983.00/Oz up 0.01% for the day. Palladium traded firmer on the day to reach a day’s high of $1 049.65/Oz before retracing to trade at $1 042.55/Oz, up 0.37% for the day.

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Koko mixed politics with work at Eskom, inquiry hears

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Cape Town – Former top Eskom executive Matshela Koko would treat employees differently if they had different political views to his, the Eskom Inquiry heard on Wednesday.

Suspended Eskom executive Abram Masango told the portfolio committee on public enterprises that Koko had undermined his authority when he was working at the Kusile Power Station because of political differences. 

He also claimed that his identity as the author of a whistleblower report had been leaked to Koko by someone within the power utility. 

But Koko, speaking to Fin24 after the proceedings ended, described Masango’s testimony as “preposterous”, saying that political differences had never influenced hos work at the power utility. 

Masango, the power utility’s former group executive for group capital, was suspended last year. 

In his testimony on Wednesday Masango alleged that Koko had instructed a general in the SANDF to “remove” employees from the Kusile Power Station Project.

The general had informed Masango, then Kusile’s general manager, of this instruction.

Masango said no reasons were given. Eventually Masango said he managed to arrange with the project director at Kusile, France Hlakudi, to meet with Koko to discuss what what going on.

But he said Koko did not give the two of them any reasons, and instead said it was a “command and control” matter. 

The wrong man

Masango said that, after requesting Hlakudi leave the office, he confronted Koko about what he meant, and asked him why the general was there. 

“His [Koko’s] specific words were, ‘You Abram, you are supporting the wrong politicians’.”

This was a reference to then Mpumalanga premier DD Mabuza in particular, Masango said.

Masango told the committee he then told Koko that he was not supporting Mabuza.

“The meeting didn’t end well. I ended up leaving.”

Masango said he then again met with Hlakudi to explain that he did not get any reasons to remove the employees, but that it was best to follow the instructions of Koko, who was acting CEO at the time.

Whistleblower report

Masango said that he had a good relationship with Koko until 2016.

“Our relationship became strained when I started becoming aware of his unprofessional conduct,” he said. 

He also told the committee that Koko appeared to have conferred with Gupta business associate Salim Essa when making staffing decisions at the power utility.

In his 2017 whistleblower report, he said he raised concerns over Koko’s conduct which included allegedly flouting due processes.

Eskom’s chairperson at the time, Ben Ngubane, called a special board meeting in March 2017 to discuss the suspension of Koko, based on the contents of the report.

Masango alleged that former public enterprises minister Lynne Brown then intervened to put a halt to Koko’s suspension.

Brown previously slammed media reports saying she had prevented Koko from being suspended in March 2017, saying these were nothing but gossip. 

A few days after the board met, Ngubane called a meeting with Koko and Masango and asked them to resolve their issues and work together. This, Masango said, revealed to him that Ngubane had told Koko that he was in fact the whistleblower, which compromised his position and safety.

‘I did not meddle in politics’

Koko, who had been following Masango’s testimony, told Fin24 on Wednesday afternoon that the allegations that he had allowed politics to influence his work were “preposterous”. 

“I find it extremely far fetched. I was an executive of Eskom, I did not meddle in politics,” he said.

He added that up until now, no one had known who the whistleblower was, contrary to Masango’s testimony.

Speaking of allegations that he intimidated individuals, Koko said: “I know nothing of the threats they talk about.”

Koko, who eventually resigned from Eskom two weeks ago, told Fin24 that he is a “private citizen” now and wants to go about his own business. 

He said that he had cooperated with the parliamentary committee and will continue to do so if they request it of him. “I want to close that chapter and be a private citizen.”

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Eskom signs R20bn credit facility amid ‘unfortunate’ downgrade

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Cape Town – Eskom has described the timing of Tuesday’s downgrade of its long-term debt by S&P Global Ratings as “unfortunate”, as it announced that it has signed a R20bn short-term credit facility with a consortium of local and international banks.

“The government guaranteed facility will form part of the financing of Eskom’s current capital expenditure programme,” the power utility said in a statement on Wednesday.

The credit facility was signed with seven lenders. Eskom did not say who they were. 

It would allow Eskom to recommence with its normal funding programme required to execute its current funding plan, it said. 

The signing of the short-term loan comes a day after S&P  downgraded Eskom’s credit rating to ‘CCC+’ from ‘B-‘, indicating that it remains at risk of a default in the next six months. 

In response, the power utility said the timing of the ratings downgrade is unfortunate as it is “starting to see slight improvements in market sentiments”.

‘Confidence in Eskom turnaround’

The cash-strapped power utility’s interim group chief executive Phakamani Hadebe said the credit facility is a “demonstration of the financial markets’ confidence in Eskom’s turnaround strategy”.

“We are cognisant of the challenges that are still ahead for the business and we are committed to ensuring that we expediently transition Eskom’s operational and financial profile to adequate standards,” he said. 

In a separate reply to a request for comment on the S&P downgrade, Hadebe said Eskom is continuing to engage with stakeholders in an attempt to resolve its liquidity shortages and issues around corporate governance. 

“We have demonstrated visible actions that have been implemented to turn this company around,” he said, adding that the power utility is “comfortable” that the South African state is giving it tangible support. 

Among the reasons for the downgrade S&P noted in its ratings announcement is that the 2018 Budget did not include a sufficiently extensive support framework for the power utility. 

“Although the South African government has taken measures to help Eskom, we think that government support to the utility over the past few months has been insufficient,” S&P said. 

Measures the government has taken this year to shore up Eskom include the appointment of a new board, pressure on the utility to fire executives tainted by corruption allegations, and assistance towards securing a R30bn short-term loan. 

Calib Cassim, Eskom’s acting chief financial officer, said the utility will continue to engage with ratings agencies around the implementation and progress of its turnaround strategy. 

What does CCC+ mean?

According to S&P’s ratings methodology, a CCC rating indicates debt that is “vulnerable to nonpayment”.

“In the event of adverse business, financial, or economic conditions, the obligor [bond issuer] is not likely to have the capacity to meet its financial commitment on the obligation,” states S&P. 

Rival ratings agency Moody’s currently has Eskom’s long-term debt at a ‘B1’ rating with a negative outlook. A ‘B1’ rating is the fourth rung of speculative grade debt. 

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