Danger of defaulting: S&P signals warning over Eskom, huge risk it poses to SA

By Loni Prinsloo

(Bloomberg) — There is a “clear danger” that South Africa’s state-owned power utility, Eskom Holdings SOC Ltd., could default on its debt, S&P Global Ratings said.

“We are very concerned about liquidity issues,” Konrad Reuss, the managing director of S&P for sub-Saharan Africa, said at an event in Johannesburg Thursday.

Eskom dollar bonds

Eskom is the biggest recipient of state guarantees at a time when domestic power demand is the lowest in more than 10 years and as South Africa’s finances buckle under lower tax revenue and rising debt. The company needs 20 billion rand ($1.6 billion) of funding by the end of its fiscal year on March 31, the Mail & Guardian newspaper reported last week, citing the utility.

Yields on Eskom’s bonds climbed after the comments, with the rate on dollar debt due in January 2021 rising 54 basis points to 6.37 percent, the highest since Nov. 14, at 1:29 p.m. in Johannesburg.

Read also: Eskom’s vital financial re-energising in danger of imploding – Yelland

Finance Minister Malusi Gigaba on Tuesday said Eskom’s state keeps him awake and is his “biggest worry.” He spoke before meeting some of the utility’s lenders on the same day to address the utility’s financial problems.

Goldman Sachs Group Inc. in September said that Eskom was the biggest single risk to the South African economy and that the government needed to replace its management.