STATE OF POWER UTILITY
Bonds static as Eskom dithers on results date
Yields on Eskom’s six-year bond little changed state-owned power utility delays its results announcement until next week
Yields on Eskom’s six-year bond were little changed on Tuesday after the state-owned power utility delayed its results announcement until next week.
On Monday, Eskom brought forward the release date of its annual results from Wednesday to Tuesday‚ before announcing later in the day that their release had now been postponed until next week.
The fate of suspended Eskom CE Matshela Koko may have been known as the state utility released its annual report.
The yield on the company’s dollar bonds due in January 2021 was bid at 5.52%, stronger than the 5.67% last week when the utility signed a R19.6bn loan deal with the China Development Bank to help finance the Medupi coal power plant.
Yields on Eskom’s six-year bond began 2017 at 5.471%, spiking to 6.367% in April. This followed an announcement of an arbitrated settlement agreement with the Gupta family’s Tegeta Resources over a controversial R2bn fine the power utility had levied on Optimum Coal.
Yields on the Eskom bond are broadly in line with what they were at the beginning of 2017. In the past six months there have been credit-rating downgrades of South African sovereign debt and high levels of investor interest in emerging market risk assets.
Some state-owned enterprises, including the South African National Roads Agency and Transnet, have suspended or delayed bond auctions in 2017. In April and May, during three successive auctions, Transnet consistently failed to raise the R600m it sought.
Transnet chief financial officer Garry Pita said last week there had been market interest, but "just not at the right price".
Eskom officials have likewise said they would seek to raise debt from other avenues due to the prices demanded by the open market. Eskom has not issued bonds to institutional investors since late 2014. This was "for clear market-related reasons", said an analyst who declined to be named.
Credit spreads on Eskom’s bonds had been increasing for some time, but this was similar to what had been seen in other state-owned enterprises, said the analyst.
Allegations that Koko was compromised by conflicts of interest when he was head of generation at the utility have been compiled and the board is considering the report. Koko became acting CE in December after the departure of Brian Molefe‚ who was implicated in alleged irregular dealings with the Gupta family.
Foreigners returned as net buyers of local bonds on Monday for the first time since the ANC’s Reserve Bank nationalisation proposal was announced, Rand Merchant Bank currency strategist John Cairns said.
Flows would have to remain positive if the rand was going to recover, he said.