How Eskom’s return may help local bond market enjoy another record year
Eskom’s comeback in the domestic bond market may propel corporate debt sales in SA to another record year.
Year-to-date debt issuance by South African companies, including state-owned enterprises (SOEs), has edged ahead of the amount sold in the same period in 2017, according to data compiled by Bloomberg. Issuers have raised R36.9bn in 2018, an increase of 1.7%. Companies sold R148bn, a record, in the whole of 2017.
The year-to-date increase is mostly related to borrowing by Eskom, which increased to R6.4bn, compared with R716m in the comparable period of 2017. The biggest issuer in 2018 so far is Standard Bank, which raised R25bn in 23 sales.
Eskom, which is South Africa’s biggest corporate borrower, lost favour with investors, including Futuregrowth Asset Management, amid concern about governance and a series of scandals, including allegations of corruption linked to the politically connected Gupta family. Its board was overhauled in January and the utility planned to recover almost R70bn in costs, it said in April.
The utility said in January it would return to the domestic and international bond markets this year, after publishing delayed financial results a day before a possible suspension of its debt instruments from the JSE. It issued a total of R3.8bn of debt in 2017, according to data compiled by Bloomberg.
"The change in sentiment has been demonstrated by the investors’ support for Eskom’s domestic bonds," Eskom’s media department said in an e-mailed response to questions. "Eskom’s funding plan for the 2018-19 year includes issuance of approximately R15bn in the domestic markets."
Mike van der Westhuizen, a portfolio manager at Citadel Holdings, said most of Eskom’s new issuance would go towards paying off existing shorter-term debt.
"This will be more expensive for the already financially strained state-owned entity, given its rapidly increasing borrowing costs over the past year," Van der Westhuizen said. "As, when and if the Eskom turnaround starts to show signs of progress and it cleans up its balance sheet the market will be more willing to take up new issuance."