Investors brace for Eskom’s D-day
Investors are prepared for the worst as the day of reckoning looms for Eskom, the stateowned power utility.
Investors are prepared for the worst as the day of reckoning looms for Eskom, the stateowned power utility.
Yields on benchmark SA government notes are at their highest in three weeks, trumped only by junk-rated Nigeria, Turkey and Lebanon among 29 major emerging markets. Randdenominated sovereign debt has lost 3% for dollar investors this half, the worst performance after Colombia and Argentina.
Foreigners have dumped a net R25bn of the country’s bonds this year, cutting their holdings to 37% of the total, from 43% less than 18 months ago.
The rand has weakened 4.6% in the half year to date and is among the five worst-performing developing-nation currencies versus the dollar.
When it comes to the cost of insuring SA’s debt against default, only Turkey and Argentina are more expensive.
Eskom, which supplies about 95% of the country’s power, has R450bn of debt and is surviving on state bailouts.
Power shortages and policy uncertainty have damped economic growth and plunged business confidence to multidecade lows as investors await the government’s turnaround plan for the utility.
“These outages threaten SA’s fragile growth profile,” Siobhan Redford, a Johannesburg-based analyst at FirstRand, said in a client note. “Clarity and certainty on plans for Eskom — both in terms of financing needs and returning to a more sustainable power generation profile — are vital in boosting the confidence of both domestic and offshore investors,” she said.
SA will “soon” announce the appointment of a permanent CEO for the utility and “shortly” release a special paper on the path the CEO and a strengthened board should take, President Cyril Ramaphosa said in a statement on Monday, in which he described Eskom’s financial situation as “untenable”.
“The sheer scale of Eskom’s debt is daunting,” Ramaphosa said. “Further bailouts are putting pressure on an already constrained fiscus.”
The bailouts will probably widen SA’s budget deficit to the biggest since the financial crisis, threatening the country’s last remaining investment-grade credit rating at Moody’s Investors Service, according to a Bloomberg survey of economists. Moody’s is scheduled to review the assessment on November 1.
A risk premium is priced into the rand and local debt partly due to weak economic fundamentals and uncertainty on the future of Eskom, said Standard Bank economist Elna Moolman. /With Ana Monteiro/Bloomberg