South Africa's National Treasury announced it will hire transaction advisers in the coming weeks to negotiate with Eskom's creditors regarding the planned spin-off of the state-owned power utility's transmission subsidiary. This move is part of President Cyril Ramaphosa's endorsed plan to create an Independent Transmission System Operator (ITSO) outside of Eskom, with the goal of increasing private sector involvement in the electricity market.
Treasury Director General Duncan Pieterse, appointed by Ramaphosa to lead Eskom's restructuring, emphasized that the transaction is being carefully designed to ensure Eskom remains financially viable and "no worse off" after the separation, and that the ITSO itself must also be sustainable. He stated a clear intention to involve lenders in the process, saying, "We have no interest in running a process where lenders are not brought along." Eskom itself has highlighted that establishing the transmission operator as a separate business would constitute a material event, potentially altering its credit risk profile.
The unbundling is complex because the transmission business is Eskom's most profitable division, accounting for nearly 40% of its core earnings, according to Moody's. Its removal could weaken Eskom's financial position, which is a concern given that the government guarantees some of Eskom's debt. A messy breakup could strain South Africa's national budget. As of 2026, Eskom's municipal debt stands at R119 billion (approximately $6.7 billion) and is projected to exceed R300 billion by 2030 if not addressed, posing a significant risk to the unbundling process.
Eskom's assets are often pledged as collateral for its borrowings, making lender consent essential before any significant transfer of ownership. The utility has improved its financial position, reducing its gross debt-to-EBITDA ratio from about 15 times to approximately four times since the current board took office in 2025. Investors are closely watching these negotiations as they will signal how the South African government handles creditors of its state-owned enterprises.
Pieterse noted that while the question of whether bondholder consent would be formally required is still open, the first step is to engage transaction advisers. The process aims to achieve a healthier grid without jeopardizing Eskom's ability to meet its debt obligations, a crucial aspect for investors with exposure to South African assets.
