Eskom in R2bn funding gap as investors pass up SOEs
ESKOM Holdings faces a $2billion (R29bn) funding gap at a time when its borrowing costs are rising as investors wary of lending to state-owned enterprises (SOEs) because of allegations of poor governance and political meddling.
Yields on Eskom’s $1.25bn of bonds due February 2025 jumped 42basis points last week after Futuregrowth Asset Management said it would not offer loans or roll over existing debt for SOEs until it was assured proper oversight had been restored.
Denmark’s Jyske Bank said it was cutting its holdings of Eskom’s bonds, while South African fund managers said they supported Futuregrowth’s stance.
Finance Minister Pravin Gordhan is in disputes with Eskom, SAA and Denel over questions ranging from the award of contracts to board appointments and spending.
The Treasury chief is the target of an investigation into alleged irregularities at the SA Revenue Authority. “We’re not looking to add any South Africa risk… in light of the recent turmoil with Gordhan; we see potential for more downside risk in the short term,” said Kevin Daly, a portfolio manager at Aberdeen Asset Management. Daly said government guarantees on some of the debt reduced the risk of holding it. “Ultimately, Eskom is too important to fail.”
The power utility said it had arranged 57percent of its required R69bn funding for the year through March next year. While “local asset managers provide considerable support to the funding of (SOEs)”, Eskom was confident it could raise the money it needed for the year even as some investors lost interest, said Anoj Singh, the chief financial officer.
In light of the recent turmoil with Gordhan; we see potential for more downside risk.
Futuregrowth, with about $11.7 billion in assets, shelved plans to lend more than 1.8 billion rand to three state companies last week and said it won’t be extending more money until the enterprises show greater transparency on spending and asset sales, among other conditions.
Yields on Eskom’s 2025 bonds climbed 2 basis points to 7.13 percent by 8:54 a.m. in Johannesburg on Monday after increasing for three straight weeks. The rand strengthened 0.8 percent against the dollar to 14.3776. The South African currency plunged 8.5 percent in seven days after Gordhan was summoned by a policy unit on Aug. 22, further highlighting risks for foreign investors.
The biggest holder of Eskom’s rand debt is the Public Investment Corp. which oversees government pension funds.
The company owns as much as 100 percent of some of Eskom’s rand bonds, according to data compiled by Bloomberg, leaving few to be traded in the market and making them less attractive for some investors.