Eskom’s Bonds Drop to Levels Before the State Bailout Earlier This Year

Colleen Goko
·2 min read

(Bloomberg) -- Eskom Holdings SOC Ltd.’s bonds tumbled to levels last seen before South Africa’s government announced billions of dollars in financial aid for the struggling state-owned company earlier this year.

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The yield on Eskom’s eurobonds without a government guarantee maturing in 2028 climbed for a sixth day Tuesday to trade at 9.72%. That’s the highest since Feb. 21, the day before Finance Minister Enoch Godongwana presented the game plan.

The move in the securities has come amid deepening supply cuts and rolling blackouts across the nation. The utility is removing as much as 6,000 megawatts of capacity from the nation’s grid until further notice following the failure of multiple generating units.

“These rolling blackouts and the headline risk around them are beginning to drive Eskom yields,” said Jones Gondo, a Johannesburg-based credit research analyst at Nedbank. “The blackouts are forcing them to use more diesel than budgeted for,” which could have implications for their liquidity.

Strategists at AllianceBernstein and Aquila Asset Management were among those that warned in February that euphoria over the debt plan was premature as the company’s problems were multi-pronged.

The 254 billion rand ($13.8 billion) state bailout for Eskom went some way in helping to address the company’s financial problems, but didn’t improve operations or alleviate electricity shortfalls that are crippling the economy.

“To tackle such a crisis you need political stability and a clear path of reforms,” said Manuel Mondia, a Zurich-based analyst at Aquila. “The former may be disrupted with the elections taking place in 2024 and so far we have not seen a sufficient pace in the latter.”

The electricity crisis is also weighing on South Africa’s local-currency assets.

“If the country cannot operate at full regime, the economy will continue to lose ground and debt sustainability will be jeopardized,” Mondia said.

Yields on the country’s 2048 bonds climbed to a three-year high on Tuesday — north of 12% — as rolling power outages deepened, inflicting yet more pain on an economy struggling to gain any momentum. The rand, too, has underperformed developing-nation peers, down almost 8% this year against the dollar versus a 2% gain for the MSCI EM Currency Index.

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