A proposal by the biggest owner of Eskom’s debt to convert its $6.4bn holding into equity has become a rescue option to restructure the troubled power utility, says a Business Day report. In return, the Public Investment Corporation (PIC), which manages about $150bn and is responsible for the pensions of more than a m i l l i o n state workers, wants a say over Eskom’s messy finances, including board representation, according to five people the report says have direct knowledge of the talks. Daniel Matjila, former CEO of the PIC, evoked a debt-to-equity swap in testimony before the judicial inquiry yesterday. The PIC holds 20% of all Eskom’s outstanding bonds. ‘When you do that, you even give the balance sheet of Eskom a bigger room to manoeuvre,’ he said. ‘But then it requires even more involvement in the governance structures.’ While the proposals have been discussed over the past 18 months to two years, they have risen in importance since President Cyril Ramaphosa said in the State of the Nation Address that Eskom would be split into generation, transmission and distribution entities, two of the people said. Matjila said he spoke to Eskom’s management about the option in early 2018.

If the proposal is implemented, the PIC will likely get shares in the transmission unit, which is seen as a stable part of the business, another person with knowledge of the talks reportedly told Business Day. Giving the PIC equity in the healthiest unit might not sit well with other bondholders. Transmission ‘will be the most well run and profitable entity’, said Peter Attard Montalto, head of capital markets research for Intellidex, a business-research firm. ‘Preferable treatment over other bondholders would create huge legal headaches for the government.’ Work on the proposal within the PIC has slowed because of the ongoing commission of inquiry into governance at the fund manager, one of the people reportedly said. Its implementation would also be opposed by some of the unions whose members’ pensions it manages. One senior banker pointed out the debt-to-equity plan could be legally challenged by other debt holders and questioned whether the PIC would have the requisite expertise to sit on Eskom’s board.