Eskom fined R3 million for JSE rules breach

The JSE has imposed a public censure and a R3 million fine on Eskom for breaching the stock exchange’s debt listing requirements.

The JSE explained to shareholders via SENS on 2 August 2024 that, while Eskom is a state-owned entity, it is listed on the JSE as an issuer of debt securities. 

Therefore, Eskom has a continuing obligation to comply with the JSE Debt Listings Requirements.

In 2020, the JSE implemented specific rules for state-owned entities or municipalities governing the disclosure of policies and treatment of Domestic Prominent Influential Persons and Loans and Procurement to related parties. 

According to these provisions, an issuer is required to have in place and publish the following on its website –

• A policy on the disclosure and treatment of domestic prominent influential persons who are board members and prescribed officers in respect of any dealings by the issuer with domestic prominent influential persons, together with a register of such.
• A policy on the disclosure and treatment of loans and procurement with any related party, domestic prominent influential persons and prescribed officers, together with a register of such

The JSE said Eskom failed to comply with the provisions of the Debt Listings Requirements after its promulgation in 2020. 

Consequently, in September 2021, Eskom applied to the JSE for an extension to finalise the relevant policies and registers and the JSE granted Eskom an extension to 28 February 2022. 

Thereafter, and in terms of the extended timeline granted by the JSE, Eskom notified the market in a SENS announcement published on 29 November 2021 that the policies and registers would be available on its website by 28 February 2022.

However, Eskom failed to abide by the terms of their own extension request and after confirming such to shareholders in the SENS announcement. 

Eskom submitted a further extension request to the JSE on 22 December 2022 for an extension until 31 July 2023 to publish the outstanding policies and registers.

However, by 31 July 2023, Eskom had not fulfilled its commitment to publish the relevant policies and registers.

“Despite Eskom’s repeated undertakings to the JSE, Eskom’s current register of loans and procurement with any related party, domestic prominent, influential persons and prescribed officers, has not been published on its website, in clear disregard of the provisions of the Debt Listings Requirements,” the bourse said. 

“Even in those instances where the required policies and registers were published on the website, such publications were not made timeously and exceeded the time frames undertaken by Eskom and granted by the JSE.”

“Accordingly, the JSE found Eskom to be in breach of paragraphs 7.9, 7.10, 7.15 and 7.16 of the Debt Listings Requirements for failing to timeously publish the policies and registers.”

The JSE explained that domestic prominent influential persons, by virtue of their positions, can have significant influence over the Issuer’s operations and financial decisions. 

“Without transparent disclosure of how these individuals are treated and involved in the Issuer’s affairs, there is a risk of conflicts of interest that can undermine investor confidence,” it said.

“Similarly, disclosing loans and procurement involving related parties is crucial. Transparent

reporting allows noteholders to assess the fairness and integrity of these transactions.”

It said that failure to disclose such information deprives noteholders of crucial insights into potential risks and the Issuer’s true financial health.

“For these reasons and with reference to the JSE’s findings of breach, the JSE has decided to impose on Eskom a public censure and a fine of R3 million,” it said.

However, it noted that the fine is wholly suspended for a period of three years, on condition that Eskom is not found to be in breach of similar provisions of the Debt Listings Requirements during the period of suspension.

In a separate SENS announcement, Eskom acknowledged the JSE’s decision and that it has not been fully compliant with the requirement to publish the policies and registers as required. 

The utility said that although it does not excuse the failure to publish the policies and registers, it wishes to note the following – 

• In terms of Eskom’s publicly available Memorandum of Incorporation, Eskom is not permitted to advance loans to directors or prescribed officers, and accordingly, no such transactions have taken place or would have needed to have been recorded in a register.
• In terms of Eskom’s Conflict of Interest Policy, which has been in effect and publicly available on Eskom’s website since 18 July 2019, Eskom is restricted from doing any business and entering into any form of procurement contracts or transactions, with any directors, prescribed officers and any employees of Eskom. Accordingly, no such transactions have taken place or would have needed to have been recorded in a register.
• In conjunction with the above, and when considering the period in review from 31 August 2020, there would have been no need for any disclosure in relation to loans to directors or prescribed officers nor would there be any procurement transactions with any directors or prescribed officers as these dealings are strictly prohibited by Eskom’s MOI and Conflict of Interest Policy.
• As far as Eskom is aware, it has not, during the period in review, received any inquiries from noteholders/stakeholders or any other market participant as to the policies and registers.
• In the period in review, Eskom has accessed the market through its Note Programme on a very limited number of occasions and in each instance has done so in response to specific requests from existing sophisticated institutional investors.

“Based on the above, Eskom is of the view that no noteholders have been prejudiced by Eskom’s failure to publish the policies and registers, and from an information transparency standpoint, there would likely be minimal and immaterial anticipated consequences for applying these policies retrospectively,” the utility said.

“The JSE sanction is for not timeously publishing the policies and registers, and in no way suggests any breach of the policies themselves.”

Eskom said it recognises the importance of effective governance and transparent disclosure for noteholder confidence. It said it has taken significant steps to rectify the non-compliance and to ensure that Eskom remains compliant going forward. 

“The outstanding policies and registers are now largely finalised and were published on the Eskom website on Friday, 12 April 2024 (policies) and Friday, 28 June 2024 (registers).” 

In addition, Eskom said it had initiated a process of informing the top 100 suppliers of the new requirement to identify and maintain a register of suppliers who fall within the categories identified in the JSE’s Debt Listing Requirements. 

Eskom said it would publish the requisite register on or before 31 October 2024.

“Eskom is disappointed to have received a public censure and suspended fine from the JSE but is wholly committed to ensuring the entity complies with the DLRs and upholds the values and principles of good corporate governance,” the utility said.