26/10/2017 06:30 SAST | Updated 26/10/2017 06:31 SAST

Banks And Lenders: Fix SOEs Or Loans Run Dry

Lenders reportedly gave Treasury an ultimatum to fix Eskom and Denel by November or risk losing loans.

Sumaya Hisham / Reuters
Finance Minister Malusi Gigaba speaks to members of the media after delivering his medium-term budget speech in Parliament, in Cape Town, South Africa, October 25, 2017.

Banks and lenders have given government until November to clean up Eskom and Denel or face having their credit facilities withdrawn, Business Day reported on Thursday. Treasury officials interviewed by the paper say lenders want new boards in place at the two SOEs by the start of next month.

In his medium-term budget address on Wednesday, Finance Minister Malusi Gigaba highlighted the danger to the economy posed by failing SOEs. He alluded to the fact that lenders have begun to lean more heavily on government to fix SOEs.

"Lenders, alarmed by governance failures, are taking a more active stance. As a result, state-owned companies are having difficulty raising debt, or are forced to refinance debt at higher rates. This situation creates liquidity challenges, leading to greater demands on the fiscus. Addressing this requires not only stabilisation measures at troubled entities, but a broader restructuring of state-owned companies and an acceleration of reforms," he said.

According to Business Report, Gigaba singled out Eskom, which reportedly has R360 billion's worth of debt, of which R202 billion is guaranteed by government.

Gigaba reportedly said, "The failures of governance, leadership and financial management (at) Eskom are of grave concern. As government is guarantor over a significant portion of Eskom's debt, it has become a significant risk to the entire economy." Gigaba also warned that, "I doubt we would be able to step in and bail out Eskom if anything went wrong."

Denel has government guarantees of R1.85 billion.

In an interview with Business Day on Wednesday, Treasury deputy director-general Anthony Julies reportedly said lenders wanted government to commit to installing new boards by November.

"Investors are expressing concerns – they are less inclined to roll over (loans). If the status quo remains, there is a high chance of lenders not rolling over."

Lenders have reportedly extended Denels' loan facilities, which matured at the end of September, to the end of December.

Giving Denel more credit also means that it will have to scrap its joint venture with Gupta-linked company VR Laser, Business Day reported.