Treasury to increase bond auctions to fund Eskom and tax deficit
Weekly fixed-rate bond auction levels will increase by R1.2bn to R4.5bn from August 6
The Treasury plans to increase the size of its weekly bond auctions to fund Eskom's bailouts and an expected shortfall in tax collections.
Eskom, which has R440bn in debt and made a loss of R20.7bn for the past financial year, is seen as a key risk to the economy and the country’s public finances and credit rating.
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In February, finance minister Tito Mboweni announced government support of R23bn a year for the next three years for the power utility. Last week Mboweni added R59bn to the package, which will flow to Eskom in 2019 and 2020.
“Additional financial support to Eskom and the preliminary indication of tax revenue shortfall relative to 2019 budget has resulted in a revised funding strategy and an increase in government borrowing requirements for 2019-20,” the Treasury said in a statement published on the JSE’s news service. Bonds are listed on the local bourse.
The Treasury’s weekly fixed-rate bond auction levels will increase by R1.2bn to R4.5bn from August 6. From August 16, the weekly inflation-linked bond auction amount will increase by R280m to R1bn, it said.
The government’s plans to rescue Eskom have received much criticism from global credit ratings agencies amid concern about the strain the aid will have on SA’s fiscal resources. Last week Fitch Ratings reduced its outlook on SA’s debt to negative while Moody’s Investors Service — the only global ratings agency that has not downgraded SA to sub-investment grade — deemed Eskom’s bailout as credit-negative for SA.
“The more debt the government issues, the more risk there is for SA to be downgraded earlier,” Rand Merchant Bank fixed-income specialist Michelle Wohlberg said.
“The problem is when a country gets downgraded it is going to take us a couple of years to return to investment grade. When in junk status, your interest costs are a lot higher and that impacts growth even more,” Wohlberg said.
Intellidex’s head of capital markets research, Peter Attard Montalto, said last week that Moody’s was unlikely to downgrade the country’s debt rating in the next year despite Eskom’s woes.
“We still see Moody’s as being off-piste and very much ‘not wanting to’ downgrade. We think external pressure on Moody’s will eventually force this paradigm to break as the agency’s credibility is tested and it looks ever more bizarrely backward looking. But that moment is unforecastable as yet.”