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Eskom keeps its investors in the dark

AS SPECULATION swirls about plans to deal with Eskom’s crippling debt load, one group of stakeholders hasn’t been consulted ― owners of the company’s R243 billion bonds.
The state-owned power utility is groaning under almost R500bn of bond and loan debt, according to data compiled by Bloomberg, and isn’t selling enough electricity to cover its operating and borrowing costs. It’s already been given a three-year, R69bn bailout by government, but had to ask for emergency funding last month to remain solvent.
President Cyril Ramaphosa insists that Eskom is “too big to fail,” but with the nation’s finances stretched to the limit and its last investment-grade credit rating hanging by a thread, government has limited scope to continue bailing the company out. Vague plans for operational restructuring have been announced, but the National Treasury said it can’t give details until Ramaphosa appoints a new cabinet, scheduled for next week.
“We haven’t had any interactions with the company outside of the Stock Exchange News Service statements and newspaper reports,” said Olga Constantatos, a credit analyst at Cape Town-based Futuregrowth Asset Management, which oversees R185bn, including Eskom bonds. “There have been no details about what would happen to current funding and a restructure. But there are multiple decisions at multiple levels that need to be made. It’s getting quite urgent now, there’s too much debt.”
Eskom’s bond yields suggest investors are confident ― for now ― that the company will be able to meet repayments in the short term, with or without government help. Yields on dollar securities due 2021 have dropped 62 basis points to 5,87 percent, since May 14, when Ramaphosa said that Eskom wouldn’t be allowed to go under, and are now at the lowest since February.
While Business Day newspaper reported on Monday that South Africa is considering the creation of a special-purpose vehicle to take over a large portion of Eskom’s debt, Finance Minister Tito Mboweni said he wasn’t aware of such a plan. The utility should first collect R17bn of debt arrears from municipalities, he said in an interview.
Other analysts have speculated that the government may swap some of Eskom’s debt for sovereign bonds, an option mooted by chief executive Phakamani Hadebe in February. Moody’s Investors Service, the only rating company still to assess South Africa’s credit at investment grade, already counts Eskom’s government-guaranteed liabilities ― about 70 percent of the bonds ― as government debt. – Fin24