Johannesburg – The Public Investment Corporation’s (PIC’s) R5bn bailout to struggling power utility Eskom may have violated the PIC’s investment mandate, according to the Democratic Alliance.
Alf Lees, DA spokesperson on finance, argued on Wednesday that the PIC investment mandate bars it from investing in non-investment grade assets.
The power utility has been downgraded several times in the last months.
During its last downgrade in January global rating agency Moody’s lowered Eskom’s long-term corporate family rating and zero coupon eurobonds family rating to B1 from Ba3.
The rating remains under review for further downgrades. The B1 rating indicates a “highly speculative” rating description, and is the fourth rung of non-investment grade debt.
The PIC invests of behalf of and manages the assets of the Government Employees Pension Fund.
The PIC advanced the R5bn bridging facility to Eskom for one month. The loan will fund the company’s operations during the month of February 2018. But three other South African banks will also have to help Eskom out, the PIC stated.
Following Eskom’s request for assistance with its liquidity challenges, the PIC said it conducted its own due diligence and obtained approval in line with its mandate and corporate governance requirements.
But Lees said that in May 2016, the PIC provided the standing committee on finance with a document marked ‘Private and Confidential’ which set out the organisation’s investment mandate.
The mandate mentions “the ultimate objective of generating sustainable returns for the clients on whose behalf the PIC invests” and that “any investment that is misaligned with the mandate cannot be funded”.
It also states that PIC client mandates provide for investing in listed and unlisted instruments, and that unlisted instruments should be guided by “investment grade instruments” as provided by the ratings agencies.
All ratings agencies put Eskom at well below investment grade, Lees said. “In fact, Eskom was downgraded further, deeper into junk, as recently as January 2018,” he pointed out.
“Worse still, the suggestion by the new Eskom board to convert Eskom debt into equity, in what can only be a fake partial privatisation drive, raises concern that the PIC loan might not be paid back.”
The PIC must now explain how it apparently ignored its mandate by extending a loan to a technically insolvent and junk-rated entity such as Eskom, Lees insisted.
The PIC did not immediately reply to a Fin24 request for comment.
Lees’ criticism follows that of trade union the Public Service Association (PSA), which called the loan an “illegal transaction” which “betrayed” workers.
The loan has also raised the ire of the South African Teachers’ Union (SATU), who called it “unacceptable”.
SATU CEO Chris Klopper said the primary duty of the PIC is to make investments in the best interests of the state pensioners.
“We find no proof that this loan does this,” he said.
The National Union of Public Service and Allied Workers (Nupsaw) also expressed shock at the loan. “Under no circumstances can the workers’ money be used to bail out any state-owned enterprise,” said Nupsaw general secretary Success Mataitsane, adding that the union is considering industrial action to protest the decision.
The Congress of South African Trade Unions, however, said it supports the R5bn lifeline to Eskom, but with conditions.
“We agree to it but with the understanding that no jobs will be touched [at Eskom], Cosatu spokesperson Sizwe Pamla told Fin24 on Monday.
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