Tag: debt

Oracle cuts Eskom off

Source: MyBroadband

Oracle has cut off essential technical services to Eskom following a payment dispute, but the impact on the power producer’s operations has been minimal.

The payment dispute arose after Eskom allegedly added modules and users to their Oracle software services without paying the required license fees.

An audit by Oracle revealed abuse by Eskom and the software giant initially claimed Eskom underpaid by R7.3 billion.

Following discussions between the parties the amount was lowered to R380 million. Eskom, however, said it only owes Oracle R166 million.

Oracle threatened to cut off essential technical services to the power utility unless it settles the outstanding R380 million.

Eskom responded by launching an urgent court application to compel Oracle to continue providing technical support amidst the payment spat.

The Johannesburg High Court dismissed Eskom’s application, and shortly afterwards Oracle cut its essential technical services to Eskom.

In its court application Eskom warned of “catastrophic consequences” if Oracle withdrew its support services.

Eskom said it could affect its ability to supply electricity to South Africa which will have a crippling effect on the economy.

To date the impact of Oracle’s decision to discontinue its support services has, however, been minimal.

Eskom spokesperson Sikonathi Mantshantsha confirmed that Oracle has cut off technical support services after their legal victory.

“Oracle’s technical support services have not been available to Eskom over the past week,” Mantshantsha told Bruce Whitfield on The Money Show.

Eskom has now implemented contingency plans which it developed in preparation for this scenario.

Mantshantsha said at this stage there has not be a “very big impact” on Eskom’s operations.

This is partly because Oracle’s support was a supplement to Eskom’s internal teams who have been working with the software for more than 20 years.

“We have activated those teams and they are holding the fort at the moment,” said Mantshantsha.

This raises the question whether the Oracle technical support services were necessary in the first place.

Mantshantsha said it is undoubtedly necessary to have the technical expertise of companies like Oracle to resolve problems with their software.

“We will continue to require such services and as such Eskom has embarked on an urgent procurement process to find the technical skills to replace Oracle,” he said.

Oracle’s decision to terminate its technical support services adds risk to electricity supply in South Africa, but Mantshantsha said they do not rely entirely on the experts from Oracle.

“There is a risk which Eskom has put mitigation measures in for…but we are able to operate without their support for now,” he said.

Eskom dismissed concerns that other providers will be hesitant to work with Eskom following this debacle.

“Any supplier which enters into business with Eskom can expect that Eskom will always honour its contractual obligations,” said Mantshantsha.

Oracle has been mum on the matter, only saying “Eskom should pay the pending dues for the Oracle software that they use”.

 

Cell C posts R5.5-billion loss

By Sibongile Khumalo for News24

Cell C says its latest set of results showed that its turnaround strategy was having a “positive impact in stabilising the business”, although some key performance industry were still down.

CEO Douglas Stevenson says investors were looking forward to a proposed recapitalisation deal aimed at driving revenue growth and profitability.

Net loss narrowed to R5.5 billion for the 2020 financial year, compared to compared to R7.6 billion in the first half of the year.
Cell C, which has battled a severe liquidity crunch, narrowed its net loss to R5.5 billion for the 2020 financial year, compared to R7.6 billion seen in the first half, with the company describing its performance as reflective of a “business in transit”.

The telecommunications operator, which in 2020 defaulted on an interest payment on a $184 million loan, said its latest set of results showed that its turnaround strategy was having a “positive impact in stabilising the business”, although some key performance industry were still down.

Its gross margin declined by 7% and cost optimisation resulted in overall direct expenses being 9% lower at R7 billion, from R7.7 billion in 2019, the annual financial statements released on Tuesday showed. A once-off expenditure of R5.7 billion was incurred due to recapitalisation and the costs associated with network restoration, which the company attributed to its net loss before tax of R5.5 billion.

“Our turnaround strategy has improved our financial performance as a mobile network operator and Cell C is operationally more efficient,” said CEO Douglas Stevenson.

“Over the next three years we will fully transition to roam on partner networks – all with the aim of providing a quality network, innovative value offerings for our customers and ensuring a profitable and sustainable business.”

‘A business in transition’

Despite a challenging period, Cell C managed to lift total subscriber numbers to over 12.5 million, up from 11.7 million in the first half of the year.

In January 2020, Blue Label Telecoms, which is a 45% shareholders in Cell C, announced that the network provider had defaulted on interest and capital repayments related to the respective bilateral loan facilities between Cell C and Nedbank, China Development Bank Corporation, the Development Bank of Southern Africa and the Industrial and Commercial Bank of China, which were due in January 2020.

“Our results reflect a business in transition,” said CFO Zaf Mahomed.

“We are starting to see the impact of our changes which included a focus on more profitable subscribers and through the reduction in costs a shift to revenue generating activities. The foundations are now in place.”

The financial challenges faced by Cell C has seen Blue Label write off its investment in the firm to zero, but support plans for the company’s turnaround.

Stevenson said the investors were looking forward to “the proposed recapitalisation deal that will provide working capital aimed at driving revenue growth and profitability.”

Total revenue was down by 8% to R13.8 billion, with a notable contribution from the prepaid customer base.

 

How SA’s wealth was destroyed

AfrAsia Bank, in collaboration with New World Wealth, has published its African wealth report for 2021.

The report analyses the trends of the continent’s ultra-wealthy individuals.

Highlights include:

  • SA is home to over twice as many dollar millionaires as any other African country
  • Egypt has the most billionaires on the continent
  • The number of millionaires living in South Africa continues to decline
  • SA has 36 500 dollar millionaires, down by 1 900 from the number recorded in 2020
  • 1 930 multi-millionaires live in SA, each with net assets of $10-million or more
  • Five billionaires live in South Africa, with net assets of $1-billion+ each

The destruction of wealth:

  • SA’s wealth performance is classed as “poor”, with total private wealth held in the country declining by 25% over the past decade
  • Loss of currency value against the dollar affected this
  • Many local businesses shut
  • Wealthy people are emigrating – to UK, Australia, USA, Switzerland, Israel, Mauritius, New Zealand, the UAE, Canada, Portugal, Spain, Cyprus and Malta
  • An inability to sell houses valued at over R10-million
  • Coronavrius has had a negative impact, with private wealth and HNWI levels in Africa dropping by around 9% over the past year (2020), due to job losses caused by lockdown, lack of tourism, closure of businesses and rising debt.

By Siphelele Dludla for IOL

Eskom has proposed taking over debt laden municipalities as it tries a different approach in recouping around R36-billion in debt arrears that continue to weigh down on its balance sheet.

Chief executive Andre de Ruyter yesterday said the utility was piloting an “active partnering” model where it would over the running of struggling municipalities, like it did with Malutia-Phofung Local Municipality in the Free State.

De Ruyter said non-paying municipalities were a “major problem” to Eskom’s financial sustainability, adding that 70 percent of the arrears debt was owed only by 10 councils.

He said that Eskom had applied a variety of measures to recoup the debt, including the so-called nominated maximum demand and attaching bank accounts and movable assets, but all these efforts had come to nought.

“We are implementing something that we call active partnering. We have tried many levers to persuade municipalities to pay,” De Ruyter said.

“But the model that we think is going to work best is something that we are currently trialing with Malutia-Phofung.”

In July last year, Eskom attached the bank account of Maluti-a-Phofung following a court order granted in 2018 as of its revenue recovery strategy.

Eskom said this was a result of the repeated failures by the municipality to adhere to its payment obligations for the bulk supply of electricity.

De Ruyter said Eskom would step in and acts as the agent for the municipality by maintaining the infrastructure such as substations while assisting with billing and false prepaid metres.

Eskom would also collect revenue on behalf of the municipality and then pays it to its bank account.

“With that part of the revenue into Eskom’s bank account we can assure that the current account is serviced on a regular basis,” De Ruyter said.

“And if you prevent further build up of incremental municipal debt, that’s a very good start towards addressing the debt problem.

“So we certainly think that this active partnering concept is far more a constructive and an appropriate way of engaging with our customers and ensuring that we get paid, and that service delivery can be addressed.”

De Ruyter said there was still a substantial ramp of legacy debt that needed to be addressed.

He said building a financially self-sustainable Eskom was part of his top three priorities.

Though Eskom’s staff costs had come down after 2 000 workers left the power utility last year, De Ruyter said the debt burden was still at unsustainable levels.

“We are currently labouring under an unsustainable net debt burden that varies between R460bn to R485bn, depending on the exchange rate,” he said.

De Ruyter also said that Eskom was not opposed to self-generation for domestic purposes without a license.

President Cyril Ramaphosa last week said the government will begin amending the law to allow for self-generation of between 1MW and 50MW to ease the burden on Eskom.

“There is a narrative that Eskom is opposed to rooftop solar generation, that’s not true,” De Ruyter said.

 

Disposable income has halved in South Africa

Source: Supermarket & Retailer

In a presentation ahead of finance minister Tito Mboweni’s Medium-Term Budget Policy Statement (MTBPS) next week, the PBO said that household consumption also dropped markedly by 49.8% in the second quarter of 2020, following a marginal increase of 0.2% in the first quarter.

The sharp decline reflected reduced outlays on all categories of goods, the PBO said. “Spending on durable and semi-durable goods contracted the most because most were classified as non-essential during the lockdown.

“Overall, consumer spending by households contracted by 7.5% from the first half of 2019 to the first half of 2020.”

The PBO said that this decline was consistent with the decline in both consumer confidence and credit extension to households.

This aligns with data from payments clearing house BankservAfrica which shows that the last few months have seen massive disruptions to the country’s average take-home pay, as a number of payments were either suspended, terminated or adjusted.

The average take-home pay in August was R14,008 in nominal terms and R11,893 in real terms. However, it is unlikely that the real average take-home pay will continue on this positive trend as the next two months had a relatively high average real take-home pay in 2019.

“A more meaningful indication of the real salary trend in South Africa at present is the average real take-home pay for the first eight months of 2019, which was R12,200 per month, indicating that the August 2020 number is nearly 2.5% lower than the same reporting period in 2019,” said economist Mike Schüssler.

Debt

The PBO’s presentation also shows that there has been a decrease in household debt in the second quarter of 2020 – its first decline since the third quarter of 2002

The ratio of household debt to disposable income increased significantly from 73.6% in the first quarter of 2020 to 85.3% in the second quarter.

“The quarter-to-quarter decline in nominal disposable income exceeded the decline in household debt.

“The outstanding balances of most categories of credit extended to households decreased during the national lockdown.

“This decline in credit extension was probably due to socioeconomic uncertainty about household saving and spending patterns.”

Data from the National Credit Regulator (NCR) from March 2020 to June 2020 shows that the number of credit agreements entered into decreased by 47.73% quarter-on-quarter from 3.93 million to 2.05 million.

In terms of credit granted for the quarter ended June 2020:

  • The value of new mortgages granted decreased by R25.95 billion (66.65%) quarter-on-quarter and by R27.20 billion (67.69%) year-on-year;
  • Secured credit which is dominated by vehicle finance, decreased by R18.57 billion (47.51%) quarter-on-quarter, and by R20.69 billion (50.22%) year-on-year;
  • Credit facilities decreased by R9.71 billion (50.53%) quarter-on-quarter and by R11.60 billion (54.97%) year-on-year;
  • Unsecured credit decreased by R15.10 billion (59.64%) quarter-on-quarter and by R18.42 billion (64.32%) year-on-year.
  • Meanwhile, credit bureaus held records for 26.96 million credit-active consumers, which showed a decrease of 3.69% when compared to the 27.99 million in the previous quarter.
  • Consumers classified in good standing decreased by 559,318 to 16.96 million consumers.

“This amounts to 62.90% of the total number of credit-active consumers, a decrease of 3.19% quarter-on-quarter and 3.65% year-on-year. The number of credit-active accounts decreased from 85.99 million to 85.23 million in the quarter ended June 2020.”

 

By Tom Head for The South African

The Matjhabeng Municipality in Free State has agreed to hand over 139 farms belonging to the administrative region, to act as a security on their R3.4-billion Eskom bill.

The serial defaulter has run up a tab of more than R3.4-billion in unpaid electricity bills over the years. Eskom put their foot down earlier in 2020, severely limiting the supply of energy for the municipality. However, it seems both parties have come to an agreement, and the total cost of the land is believed to be worth R2.5 billion.

This doesn’t clear all of the debt, but it marks a significant – if unusual – agreement between both parties. The deal was facilitated by the Free State High Court, and the title deeds will be signed over to Eskom while Matjhabeng remains in arrears. It is not yet clear what the power utility intends to do with these farms, should the debt stay in place.

The firm issued a statement on the matter earlier on Tuesday, confirming the details of their “land shedding” exchange. They state that all defaulting municipalities still owe them R31-billion, which remains a “threat to sustainability” for Eskom.

“In its ongoing efforts to recover more than R3.4 billion in unpaid debts owed by the Matjhabeng Municipality, the administrative body has agreed to hand over to Eskom 139 farms belong to the municipality, as a security on the debt. The farms are worth approximately R2.5 billion, and the title deeds will be endorsed in favour of Eskom.

“This will remain in place while the debt is unsettled. The order has been made by the High Court in Free State. This step on the part of Eskom is the result of repeated failures by Matjhabeng Municipality to adhere to its payment requirements. The total outstanding municipal debt [for all municipalities] of R31-billion threatens our sustainability.”

 

According to an article recently published by BusinessTech, the South African Local Government Association (SALGA) is considering a number of new measures to improve municipal revenue collection across the country.

Auditing outcomes under the current local government administration, now in its third year, have regressed.

Over the three-year period, the audit outcomes of 76 municipalities regressed, while only 31 improved. Only 11% of the 257 municipalities getting clean audits.

The suggested measures include:

  • Working with the South African Revenue Services (SARS) to withhold tax refunds for non-payment of utility bills. The municipality will be paid first before a refund is deposited to the tax payer’s account
  • Write-offs of the ever-increasing household debts to municipalities, including the introduction of a national bill for the writing off of these household debts in exchange for the installation of prepaid water and electricity metres
  • Amending schedule 2 section 10 of the Municipal System Act so all state employees are required to be up-to-date on municipal bills, and not just municipal councillors and employees
  • The establishment of a District Revenue Collection Agency to achieve better collection efficiencies and free up municipal personnel to focus on more pressing service deliver efforts
  • Amending the procurement regulations to make it compulsory for any potential service provider to produce a municipal services rates compliance certificate, prior to being awarded a government contract.
  • Resolving municipal and customer debts to Eskom
  • Bringing together preventative controls to improve the financial state of municipalities

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.

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