‘Junk’ Eskom races to reassure investors

Eskom is engaging investors in an effort to avert the liquidation of some of its bonds in the wake of Moody’s downgrade last week of its senior unsecured ratings from Baa3 to Ba1.

The rerating followed the downgrade of government and placed Eskom in “junk” territory.

Investors who are bound by mandate to investment grade products have the option to liquidate the bonds since they do not comply with their instructions any more.

Eskom financial director Tshelofelo Molefe said an even bigger concern was investors might in future have to limit the term of their investments, which would result in ongoing refinancing.

Leon Claassen, an analyst at Ratings Afrika, said the bond rate was normally set for the term of a bond. If the terms were short- er, the debt would have to be replaced by new instruments when the initial bond expired, which opened the door for higher rates if the utility was downgraded even further in the future.

Molefe said most Eskom investors were long term and, since Moody’s announcement on Friday, there were more buyers than sellers of Eskom bonds.

Eskom’s domestic trading desk was tasked with facilitating changed investor requirements and trying to keep investors from disinvesting Eskom bonds totally. The idea is those who choose to exit long-term vanilla debt be moved to shorter term or inflation-linked debt at market rates.

She said Eskom was providing updates to investors, providing a comprehensive overview of the Eskom credit story, “thereby averting possible kneejerk reactions”.

At the end of its financial year in March Eskom had R254 billion in debt.