Nedbank Urges South Africa to Deal With ‘Sick Elephant’ Eskom

JOHANNESBURG (Capital Markets in Africa) – South Africa needs to speed up reforms to save beleaguered state-owned power utility Eskom Holdings SOC Ltd. and attract investors back to the country, according to the chief executive officer of Nedbank Group Ltd.

“For us, energy policy and Eskom remain the elephant in the room in the South African economy,” Mike Brown said in a phone interview after the lender posted a slight rise in first-half net income. “If the previous CEO of Eskom is to be believed, it’s a very sick elephant.”

Saddled with more than $30 billion of debt, Eskom is seen as the biggest threat to Africa’s most-industrialized economy. The company last week posted a record 20.7 billion rand ($1.4 billion) loss and is surviving on bailouts from the cash-strapped state. The government has committed billion of dollars to keep the utility afloat and has been slow to implement plans to split the monopoly into three businesses to help make it self-sufficient.

 “Until we have certainty as to the strategy, structure, leadership, operational capacity and long-term finances of Eskom, I think we will not see any material new project investment,” Brown said.

‘More Urgency’
The government has yet to appoint a new CEO for Eskom and an initial bailout has been increased by 59 billion rand. Moody’s Investors Service, the only major credit-rating company that still assesses South Africa’s debt as investment-grade, said that the additional support without an accompanying plan to make the company more sustainable is “credit negative.”

“Significantly more urgency is required with the implementation of structural reforms to stem the economic and fiscal deterioration currently being experienced in the South African economy,” Brown said in a statement earlier Tuesday. “If we are unable to do this, all the hard work done on maintaining our last investment-grade rating from Moody’s will be in vain, at great cost to all South Africans.”

The government also needs to move faster on legislation intended to accelerate land reform, Brown said.

Bloomberg Intelligence 1H Preview: Nedbank Under Pressure as Earnings Headwinds Mount

South Africa’s fourth-largest lender by assets increased profit slightly and managed to grow revenue faster than costs even as the country experiences “slower-than-expected” economic growth, it said earlier Tuesday.

Source: Bloomberg Business News