Eskom bonds punished as investors clamour for faster turnaround
Many want to see more action on operational and organisational changes meant to return the company to sustainability
Some investors are getting out of Eskom dollar bonds amid concern SA is taking too long to implement a turnaround plan and explain what it will do about the power utility’s R450bn debt.
Yields on the struggling power company’s dollar bonds due in 2025 climbed to a one-month high on Wednesday, even though the government’s R138bn bailout has bought it some time to reorganise its finances. Besides concern over the debt load, investors want to see faster progress on operational and organisational changes meant to return the company to sustainability.
Plans mooted as far back as February to split Eskom into three operating units will take until the end of 2021 to be fully implemented.
A new CEO was supposed to be in place by the end of October. And perhaps most troubling, the idea of selling some power plants and cutting the bloated workforce has met fierce opposition from the ANC’s labour allies.
“The political will needs to be found to make the difficult decisions that are needed to set Eskom on a sustainable path,” said Olga Constantatos, a credit analyst at Cape-Town based Futuregrowth Asset Management, which oversees R185bn including Eskom bonds.
“The time for urgent action is now,” Constantatos said.
The lack of progress has already seen Moody’s Investors Service tone down its leniency on SA. The rating company assesses SA’s debt at Baa3, the lowest investment level, but changed its outlook to negative last week, giving SA possibly until February’s budget statement to lay out credible plans for the utility or risk a junk rating. The company cut Eskom’s standalone rating one step on Tuesday to B3, or six levels into junk.
Yields on Eskom’s 2025 dollar bonds have climbed 19 basis points in the past two days to 6.52%, still well below their December peak but up almost a percentage point since July. The government has repeatedly said investors won’t lose money in the reorganisation of the company’s R450bn debt, most of which is guaranteed by the state.
Still, “investors are disappointed”, said Bronwyn Blood, a fixed-income portfolio manager at Granate Asset Management in Cape Town. “There are still important questions that remain unanswered, particularly regarding the debt restructuring and where existing creditors stand.”
An announcement on a new CEO is expected within days, along with changes to Eskom’s board, President Cyril Ramaphosa said in an interview on Wednesday. The utility has been without a permanent CEO since Phakamani Hadebe quit in July and the post has been temporarily filled by its chair, Jabu Mabuza.