South Africa plans to appoint advisers in the coming weeks to begin discussions with lenders regarding the spin-off of state-owned power utility Eskom Holdings SOC Ltd.'s transmission subsidiary. This initiative is part of President Cyril Ramaphosa's broader effort to introduce an independent transmission system operator (TSO) and encourage private sector participation in the electricity market.
The unbundling of Eskom's profitable transmission division has raised concerns about the utility's long-term financial viability and the treatment of government guarantees backing its debt. National Treasury Director General Duncan Pieterse, who leads the Eskom restructuring team, stated that the transaction is being carefully designed to ensure Eskom remains sustainable and is not left worse off, while also ensuring the TSO's sustainability. Pieterse emphasized the importance of engaging with and bringing lenders along in the process, acknowledging the complexity of managing existing debt covenants.
Eskom itself has warned that establishing the TSO as a separate entity would be a "material event," significantly altering its credit risk profile. The government has guaranteed approximately $20 billion of Eskom's debt. Raphi Rootshtain, lead portfolio manager at Otto1890 Asset Management, noted that existing covenants and agreements with current debt holders would likely necessitate debt restructuring. Pieterse, however, declined to confirm if bondholder consent would be required, stating that hiring a transaction adviser is the immediate next step.
