Barbara Curson considers the financial impact of the proposal to divert R254 billion from the Government Employees Pension Fund (GEPF) to Eskom.
She notes that the Public Investment Corporation (PIC) manages 83% of GEPF assets in the form of equity, bonds, money market instruments, and property portfolios. The remaining 17% is managed by 32 asset managers appointed by the GEPF. But, the relationship between the PIC and the GEPF is opaque, with the PIC taking the lead in making investment decisions. Unfortunately, no one has any idea of the current value of the fund because neither the PIC nor the GEPF provide interim financial statements. The most recent actuarial valuation of the GEPF as at March 2018 indicated declining short and long term funding. The minimum short-term funding level was only 18.3% above the target of 90%, and the minimum long-term funding level was 24.5% below the target of 100%. As at 31 March 2019, the GEPF had already invested R85 billion in Eskom. In Curson’s view, injecting R254 billion into Eskom would be neither a loan nor an investment – it would be an unwarranted gift granted through gritted teeth. As Eskom is clearly insolvent, it will be unable to pay interest, nor make loan repayments. Further, the GEPF/PIC will receive no rights – no right to appoint directors, no say in business decisions. In Curson’s view, the R254 billion cash injection into Eskom cannot be classified as an investment, and would immediately deplete the assets in the fund to the extent of a massive 14.1% haircut. As at March 2019, the GEPF had R29 billion “cash and cash equivalents”, so it will thus have to sell some good assets to provide the cash. Moreover, a rough non-actuarial calculation indicates that the R254 billion haircut will cause the fund’s long-term funding level to drop to 64.9% (minimum funding level target level is 100%), while the short-term funding level will only be 1.6% above the minimum 90% level.
- Read the full original of the above article by Barbara Curson at Moneyweb
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