Tag: debt

Cell C defaults on loans of R3.16bn

By Dineo Faku for IOL

Blue Label yesterday notified its shareholders that troubled Cell C had defaulted on its loans.

The JSE-listed telecoms group, which holds 45% of Cell C, said the country’s third-largest mobile telecoms provider had failed to make payments of capital on its $184million (R3.16billion) note, which was due on Sunday, and interest and capital repayments related to the respective bilateral loan facilities between Cell C and Nedbank, the China Development Bank Corporation, the Development Bank of Southern Africa and the Industrial and Commercial Bank of China, which were due in January and last month.

Blue Label said note holders were aware that Cell C was working on its liquidity crisis.

“Currently, none of the bilateral loan facilities has been accelerated, as note holders are aware, and support that Cell C is committed to resolving the situation by agreeing to restructure terms with its lenders while it also continues to work pro-actively with all stakeholders to improve its liquidity, debt profile and long-term competitiveness,” said Blue Label.

Cell C said the loan defaults came as no surprise, because its informal debt was at a standstill until its recapitalisation programme was finalised.

“Cell C continues to work pro-actively with all stakeholders to improve its liquidity, debt profile and long-term competitiveness as part of its turnaround strategy,” the company said.

Cell C said its turnaround strategy was focused on ensuring operational efficiencies, restructuring its balance sheet, implementing a revised network strategy and improving overall liquidity.

“While a new recapitalisation is being negotiated, there is an informal debt standstill and debt payments have been suspended,” said the company.

It said that although Cell C’s lenders were entitled to call up the entire debt owed, they had not accelerated debt payments and had held off on taking action in order to facilitate a commercial solution.

“The non-payment is not a surprise to lenders that understand the Cell C turnaround strategy.”

The company said its S&P Global status on certain loan facilities and senior secured bonds remained unchanged at D (default).

Ofentse Dazela, director of pricing research at Africa Analysis, said the default showed that the company’s expanded roaming agreement with MTN, which was touted as some sort of panacea, had not yielded the intended results.

Dazela said the operator continued to navigate a challenging environment and questions about its sustainability were becoming more pronounced by the minute.

By Carin Smith for Fin24

Two main trends have emerged regarding consumer debt levels in South Africa, according to the latest DebtBusters’ debt index for the second quarter of 2020 released on Monday.

Firstly, the index reveals a real-term decline in net incomes and secondly, consumers are supplementing this by increased unsecured lending.

“As a result of lack of growth in their net incomes, consumers find themselves in a corner and have been borrowing heavily, especially using unsecured loans, to make up the shortfall,” said Benay Sager, DebtBusters’ chief operating officer, in a statement.

Bigger earnings, bigger debt

Higher-income earners in South Africa in particular appear to have come under significant debt pressure, according to the debt index for the second quarter of 2020.

The increase in unsecured debt is, on average, 18% higher than it was four years ago. For consumers earning more than R10 000 per month, unsecured debt is 31% higher – for those earning R20 000 or more per month, unsecured debt levels are 42% higher than 2016 levels.

Consumers earning R20 000 or more a month had an unsustainable debt-to-income ratio of 138%. This is 12% more than during the same period in 2016.

The quarterly analysis by DebtBusters has been tracking client trends over the past four years.

“Although it’s impossible to determine the full impact of the hard lockdown based on just one quarter, the four-year-trend shows that for most consumers, debt levels are steadily increasing,” says Sager.

“This is because nominal incomes have been flat, so in real terms people have less income than in 2016, as inflation over the same period has been around 20% cumulatively.”

According to Berniece Hieckmann, head of GetUp, a new offering from financial services provider Metropolitan that includes debt consolidation and income protection, the backdrop of SA’s existing socio-economic landscape means the Covid-19 pandemic has the potential to financially cripple a generation of young South Africans at the very start of their professional journeys.

She points out that, while Covid-19 has had a devastating impact on the global population, young people, in particular, are anticipated to be one of the most significant casualties of the pandemic.

According to the International Labour Organisation (ILO), past recessions have shown that young individuals are usually first to be laid off work, while three out of four work in the informal economy, with little or no social protection. In addition, youth are over-represented in sectors ravaged by the pandemic, such as hospitality, retail and tourism.

“Our research revealed that debt is the lived reality of many millennials. As the financial burden on them increases, so is debt expected to mount – creating a trap that they may struggle to escape,” says Hieckmann.

Chief executive of FNB Easy, Philani Potwana, says to alleviate financial pressures, consumers should fully utilise the free benefits they receive from their banks. These benefits could free up much needed cash in consumers’ wallets, if taken advantage of.

These free benefits could include free cash withdrawals; prepaid airtime for free; free “send money” transactions; free card swipes; free app usage; free data, voice minutes and SMSs; free medical, legal and financial advice.

“Despite the prevailing challenges, we believe there’s an opportunity for all customers to get maximum value from their banking relationship,” says Potwana.

According to Investec chief economist Annabel Bishop, the lagged effect of the very severe lockdown the SA economy has experienced this year has started to come through in the data. The number of individuals losing their salaries over June fell by -20.7% year-on-year, according to the latest BankservAfrica data, while May saw a figure closer to -14% y/y and April around only -1.0% y/y.

The BankservAfrica Take-home Index (BTPI) records the majority of payments from large corporates and a fair number of medium-sized firms that are served by payroll service providers and firm-owned payroll administrators. Bishop points out that the recent decrease of the index may, therefore, not reflect the full impact of salary declines on small firms.

“In South Africa, state subsidies to low income earners have assisted households, and many high income earners and savers have managed to subsist on savings, but the middle income band has been severely affected, with many sliding into poverty, in turn contributing to further severe weakening in economic activity as demand has reduced,” says Bishop.

“The private sector is seeing markedly lower levels of renumeration overall this year compared to last year, while civil servants do not see this collapse, managing to avoid their salaries being reduced by and large, and instead even having agitated via unions for higher levels of renumeration despite the collapse in government’s tax revenues this year.”

By Londiwe Buthelezi for Fin24

The Land Bank, which last week defaulted on some of its R738-million debt due to mature before the end of April, says it plans to approach its funders to negotiate waiving its current and anticipated defaults, and ask them to help it deal with its liquidity problems instead.

The state-owned lender, which funds emerging, and commercial farmers, said on Monday it is approaching stakeholders to raise up to R5 billion to meet its medium-term liquidity requirements.

“The Land Bank does not have sufficient liquidity to enable the Land Bank to meet its short-term interest and capital repayments across all its funders unless the Land Bank is able to secure sufficient bridge funding. Certain funders have or will be approached to participate in the provision of bridge funding to the Land Bank,” it said in a statement.

This comes after the struggling bank failed to prevent a default on certain of its debt obligations last Thursday, which triggered a cross default on other bonds.

On Monday, the state lender said that in order to continue with its operations, it will ask its funders to defer for one year all the debt repayment and interest that is due within the next six months. It will also ask them to waive current defaults and anticipated defaults for debt due within that six months period.

The bank said it has asked the commercial bank with the largest exposure to it to coordinate all the commercial banks it owes into a group. It has also asked the Association for Savings and Investments SA to coordinate bond notes holders.

Bloomberg reported on Friday that funders of the agricultural bank were willing to help the state-owned lender recover from the loan default if government gives a commitment to pitch in too.

National Treasury, meanwhile, said last Monday it was considering recapitalization and further guarantees for the bank.

“Assistance in the form of recapitalisation and further guarantees is under consideration and would have to be accompanied by balance sheet optimisation of the Land Bank to correct the structural liquidity risk embedded in the balance sheet,” said Treasury in response to Fin24’s questions on April 20.

FNB is hit by a big increase in bad debts

The country’s largest banking group by market capitalisation says it has experienced “a material slowdown” in its South African operations since the beginning of 2020.

FirstRand released its interim financial results showing that its businesses collectively grew normalised earnings by 5% in the six months to December:

  • FNB South Africa grew its earnings by 5%
  • More customers deposited more money
  • FNB experience a R910-million increase in the bank’s credit impairment charge
  • FNB card impairments increased by 77% to R270 million as advances grew by 21%
  • Non-performing loans (NPLs) in card business increased by a 84%
  • FNB’s personal loans business also recorded a 47% increase in impairment charges to R300-million
  • The residential mortgage book saw its credit loss ratio increase to 22 basis points as NPLs increased by of 12%
  • FNB commercial NPLs increased by 47%

“Looking forward to the second half of the year, the group is of the view that the South African macroeconomic environment will continue to deteriorate, probably at a faster rate than in the first half,” FirstRand said.

The group said as the coronavirus outbreak is expected to result in supply chain disruptions, while the weak economy will leave consumers will less disposable income and job losses, companies will be under pressure.

“FirstRand has already experienced a material slowdown in its domestic business since the beginning of 2020. Given the expected pressures on top line the group appreciates the need for ongoing cost efficiencies, balanced with continued investment in sustainable growth strategies,” read FirstRand’s statement.

By Botho Molosankwe for IOL

Eskom has hit back at allegations made against it by organisers of the Soweto Shutdown who claimed that the power utility’s bullying tendencies were the reason they had taken to the streets.

The Electricity Crisis Movement had planned to paralyse Soweto on Tuesday saying Eskom treats them terribly compared to people living in areas such as Sandton.

While the power utility is battling financially, everything was blamed on the Soweto debt and as result, the area was load shed longer and frequently compared to other areas, said the Movement’s Trevor Ngwane.

“Eskom’s problems did not start with the Soweto debt although every cent and billion counts. Eskom, just like many State-Owned Enterprises, has problems with corruption and mismanagement but they’re using Soweto debt as a fig leaf cover up.

“Another thing is that if a substation explodes or needs maintenance, they don’t send someone to repair it on the grounds that Soweto residents are not paying.

“It is a myopic strategy to let infrastructure go into disrepair; it’s the shortsightedness and arrogance of Eskom. Soweto people are not paying because they are poor,” he said.

However, the power utility came out guns blazing, saying Soweto currently owes Eskom R18-billion despite the fact that they scrapped the township’s debt twice in the past with an agreement that customers will start paying.

That, however, has not yielded the desired results hence the huge debt, Eskom said.

“We have however agreed to park the debt for those customers on split pre-paid meters on condition that they are loyal in purchasing electricity from Eskom vendors and not bypassing the meters for a period of 36 months.”

Eskom also said the government also provides free electricity to indigent people but that was a process administered by municipalities who uses their own criteria to identify deserving customers.

“In the case of Soweto, the City of Johannesburg administers this process. Customers are encouraged to partake so they can benefit as this will alleviate pressure.”

Ngwane also accused Eskom of loadshedding Soweto frequently and longer than other areas as a form of punishment for their debt, something that the power utility denies.

According to Eskom, load shedding follows a schedule on the power utility’s website. However, sometimes power outages occur due to network faults, vandalism and theft of infrastructure outside load shedding, the power utility said.

Eskom also said they have over the years tried to disconnect those who are not paying but that became unsafe for their staff as some residents resisted that effort.

“We have customers who are honouring their payments on monthly basis however most are not.

“In some cases, those that we managed to disconnect simply reconnected themselves and unfortunately this meant they had to be billed for their consumption and since it was not paid, it also accumulated interest.

“Eskom is however still disconnecting all customers found to have bypassed and bridged meters as well as illegal connections.

“It is to be noted that there has been numerous interventions supported by the Department of Public Enterprises in the past yielding no positive results on the growing debt. We are currently converting post-paid meters to prepaid as mentioned above in order to stop the debt from growing further.”

The Shutdown of Soweto that the Movement had planned on Tuesday in response to their displeasure with Eskom, however, failed to take off.

In one instance, the South African Police Services and Joburg Metro Police fired rubber bullets and teargas to disperse a group of about 30 protesters who were trying to block an intersection in Orlando.

Soweto blames non-payment on 1992 accord

Source: 702

Soweto residents have embarked on a protest over electricity cuts by Eskom. The residents blockaded roads and set fire to tyres on Monday morning, causing traffic delays in the area.

The power utility cut off power in Soweto after the municipalities failed to settle their debts. Eskom says it is owed more than R18-billion by the residents.

Soweto residents’ representative King Sibiya says they need a breakdown of the debt from Eskom.

“This is the question we are asking Eskom – if they say we are owing R18-billion, can they Eskom break it down for us?” he said on Twitter.
“Firstly in Soweto, we have plus-minus six malls which are using electricity more than anything, we also have Baragwanath Hospital which is a national hospital, police stations etc.”

Sibiya says they requested a meeting with Eskom but the power utility told them they need the debts to be paid.

Later Eskom conducted an audit on certain parts of the area.

“What we are being charged are estimations, Eskom doesn’t come to our houses and conduct meter readings,” says Sibiya. “In 1992 we signed an accord that the people of Soweto will pay a flat rate of R33.80.”

Meanwhile, Eskom senior manager of customer services in Gauteng Daphne Mokwena says they are not targetting Soweto in particular, but rather residents that are not paying for electricity.

“We are not privy to the 1992 document they are talking about. We have requested via our legal representatives to see the documents but we are still waiting for it. If I haven’t seen it, it does not exist,” she stated.

Responding to meter reading statement, Mokwena says they have been chased out of Soweto when their technicians go there.

She adds when that happens they use the previous meter reading to estimate the following bill.

By Jan Cronje for Fin24

Mobile operator Cell C has defaulted on an interest payment on a $184m loan (about R2.7bn at current exchange rates) which was due in December 2019, according to a notice from its key shareholder Blue Label Telecoms Limited.

In a statement to shareholders on Tuesday, Blue Label said Cell C had also defaulted on interest and capital repayments related to the respective bilateral loan facilities between Cell C and Nedbank Limited, China Development Bank Corporation, Development Bank of Southern Africa Limited and Industrial and Commercial Bank of China Limited, which were due in January 2020.

Blue Label’s share price plunged by almost 12%.

“Currently, none of the bilateral loan facilities have been accelerated as noteholders are aware and support that Cell C is committed to resolving the situation by agreeing to restructuring terms with its lenders while it also continues to work proactively with all stakeholders to improve its liquidity, debt profile and long-term competitiveness,” Blue Label said.

In a brief separate media statement, Cell C said that the suspension of payments was part of wider Cell C initiatives to “improve liquidity and to restructure the company’s balance sheet”.

“Cell C continues to work proactively with all stakeholders to improve its liquidity, debt profile and long-term competitiveness as part of its turnaround strategy,” it said.

By Khulekani Magubane for Fin24

Overdue debt owed to Eskom by municipalities increased by some R1.2bn in September to R26.4bn by the end of October, Parliament’s Standing Committee on Public Accounts heard from the inter-ministerial task team aimed at resolving the debt owed to the power utility.

The meeting took place on Tuesday morning in Parliament, along with the top 20 debtors who account for 79% of the total debt. Of these, the top 20 municipalities who owe Eskom money account for 67% of the overall council debt.

Since the inter-ministerial task team was established in 2017, it has met with Eskom at least 40 times, but the debt to Eskom has grown by R16bn.

Scopa, for its part, has decried the lack of progress in reducing the debt owed to the already troubled utility. The last time the committee met to discuss the matter, none of the ministers in the task team showed up. This prompted Scopa to admonish the ministers, especially Minister of Cooperative Governance and Traditional Affairs Nkosazana Dlamini-Zuma, who chairs the task team.

Executive manager at the Department of Cooperative Governance and Traditional Affairs (Cogta) Kevin Naidoo told Scopa that out of a total of 48 valid payment arrangements that Eskom had with municipalities, only 11 were being fully honoured as of October.

Growing debt, fewer payments

“The top 20 payment levels have dropped from a peak of 91% in March 2016 to 31.3% in October 2019, with virtually no payment towards the current accounts over the last 7 months,” said Naidoo.

Among the top defaulting debtors, Maluti a Phofung Local Municipality in the Free State owes a total debt of R4.5bn, R4.4bn of which is overdue.

Emalahleni Local Municipality in Mpumalanga owes a total debt of R3.3bn, R3.1bn of which is overdue. Matjhabeng Local Municipality’s total debt stands a tR2.7bn, of which R2.6bn is overdue.

Eskom chair Jabu Mabuza said despite having over 40 meetings with the inter-ministerial task team, the debt has only grown, meaning that leadership “either misdiagnosed the problems or mis-prescribed the solution”.

“If one looks at this trend, by the end of the financial year, this debt will be at R30bn and this time next year, the debt would be at R35bn. That’s where the direction is heading,” said Mabuza.

Scopa chair Mkhuleko Hlengwa said he and the rest of the committee members were growing weary of meeting over the same issue, only to find with each meeting that the debt crisis had gotten worse than it was before.

By Jan Cronje and Khulekani Magubane for Fin24

Centlec, the Free State utility that provides electricity to customers in the Mangaung Metropolitan Municipality, which includes Bloemfontein, says it will meet with Eskom on Thursday to discuss the paying of its debts.

On Monday Eskom warned that it would interrupt daytime power to three Free State municipalities from December 3 unless they paid their debts or entered into payment plans. They are the Mangaung Metropolitan Municipality, the Mafube local municipality and the Mantsopa local municipality.

In a statement, Centlec spokesperson Lele Mamatu said “everything possible will be done to keep the lights on”.

“Our view is that this matter could have been better handled without causing panic to our customer in general however we are hopeful there’s still a room to can find each other.”

Mamatu said that Centlec has a “good track record of managing its electricity account with Eskom”.

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Eskom, which has a group debt burden of about R450bn, acknowledged on Monday that “indefinitely” stopping the provision of electricity to the three municipalities would cause “undue hardships on consumers”.

It said that, if it cannot enter into agreements with the municipalities, it would withhold electricity for 16 hours per day between 06:00 and 20:00 on weekdays and weekends from December 3, but provide electricity overnight for eight hours.

As of September 2019, Eskom was owed R25.1bn by municipalities countrywide. The warning to the three municipalities comes after National Treasury in November imposed the recovery of billions of rand of municipal debt as one of 28 conditions that Eskom must adhere to in return for a R59bn lifeline. President Cyril Ramaphosa signed the bill granting Eskom the funds last week.

Retrenchments loom at SAA

Source: eNCA

South African Airways (SAA) has informed its more than 5,000 employees that it’s restructuring. It is estimated that about 944 staff will be affected – nearly 20% of the workforce.

The national carrier has had its fair share of financial turbulence.

But in the mid-term budget, Finance Minister Tito Mboweni announced that the state would pay off the airline’s R9.2-billion debt over the next three years.

The airline has incurred over R28-billion in cumulative losses over the past 13 years.

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