Share

Eskom's gain is SA's pain as investors balk at debt

President Cyril Ramaphosa’s latest pledge to support Eskom is good news for the cash-strapped electricity company - but some investors are balking at the prospect of increased sovereign-bond issuance to pay for the bailout.

Ramaphosa announced last week would bring forward part of the R230bn earmarked for Eskom over the next 10 years. The Treasury hasn’t budgeted for additional support over and above the 23 billion rand allocated in February for this and each of the next two years.

“Additional front-loaded support will mean an increase in bond issuance as revenue and cost-cutting measures are currently insufficient to fund Eskom’s support,” said Mike van der Westhuizen, a portfolio manager at Citadel Holdings in Johannesburg. “Until we have exact numbers in terms of immediate support needed, or the actual plan, it’s difficult to calculate the effect on the fiscal situation.”

The premium of 20-year bonds over two-year securities steepened on Friday to the most since January as investors priced in the risk posed by Eskom to the country’s long-term debt path, according to Alvin Chawasema, a trader at Sasfin Securities Ltd. in Johannesburg.

A wider-than-forecast budget deficit and failure to curb debt could result in South Africa losing its last remaining investment-grade credit rating at Moody’s Investors Service. Yields on benchmark rand-denominated bonds due December 2026 climbed by the most in more than a month on Friday, and that may just be the start, said Van der Westhuizen.

“The market is far too complacent at current yields on South African government debt,” he said. “Given the lack of clarity around Eskom, and other structural reform for that matter, the risks are heavily and disproportionately skewed towards bond weakness. The current debt-to-GDP trajectory does not look healthy at all.”

We live in a world where facts and fiction get blurred
Who we choose to trust can have a profound impact on our lives. Join thousands of devoted South Africans who look to News24 to bring them news they can trust every day. As we celebrate 25 years, become a News24 subscriber as we strive to keep you informed, inspired and empowered.
Join News24 today
heading
description
username
Show Comments ()
Rand - Dollar
19.02
-0.6%
Rand - Pound
24.01
-0.5%
Rand - Euro
20.52
-0.3%
Rand - Aus dollar
12.35
+0.0%
Rand - Yen
0.13
-0.6%
Platinum
900.40
+0.4%
Palladium
998.40
-0.3%
Gold
2,211.77
+0.8%
Silver
24.64
-0.0%
Brent Crude
86.09
-0.2%
Top 40
68,114
+0.6%
All Share
74,310
+0.5%
Resource 10
56,946
+2.3%
Industrial 25
103,653
+0.4%
Financial 15
16,467
-0.3%
All JSE data delayed by at least 15 minutes Iress logo
Company Snapshot
Editorial feedback and complaints

Contact the public editor with feedback for our journalists, complaints, queries or suggestions about articles on News24.

LEARN MORE
Government tenders

Find public sector tender opportunities in South Africa here.

Government tenders
This portal provides access to information on all tenders made by all public sector organisations in all spheres of government.
Browse tenders