Eskom power cuts rand – junk status warning; Zim dark days; retail sales; Mediclinic boost

By Jackie Cameron

  • Load-shedding was the big story of the day on Wednesday, with the rand weakening as Eskom, the state-owned South African utility that provides about 95% of the nation’s power, said it would cut 2,000 megawatts of electricity from the national grid because of a shortage of generation capacity, reports Bloomberg. The utility, which has amassed R450bn ($30bn) of debt and is reliant on state bailouts to remain solvent, has battled to meet demand for electricity because most of its plants are old and have been poorly maintained. The power shortages have been a major constraint on production and growth in Africa’s most industrialised economy. The rand declined as much as 1.1% against the dollar and was 0.6% weaker at 14.9851 by 8:37am in Johannesburg. Eskom implemented the power cuts amid maintenance problems.
  • Power cuts could push SA to junk status, Bloomberg warns. Power shortages have been a major constraint on output in Africa’s most industrialized economy. Protracted outages could cost the country its last investment-grade credit rating from Moody’s Investors Service, which is due to deliver its next assessment on November 1. The government has said it will announce plans to restructure Eskom into three operating units and reorganize its debt by the end of the month. “The timing isn’t great,” said Simon Harvey, a London-based currency analyst at Monex Europe Ltd. “Whether this is a short-term reaction from Eskom to stem longer-term supply issues or is the start of a continuous process is key and will determine if the rand’s sell-off is more structural. Regardless, investors won’t take the news well.”
  • Eskom troubles will have a knock on effect to Zimbabwe, where some Harare residents have been without power for three days. Bloomberg reports that the power blackouts announced by South Africa’s Eskom Holdings SOC Ltd. will exacerbate power shortages in neighbouring Zimbabwe. Eskom’s cuts will affect imports that Zimbabwe receives from Africa’s largest power utility, Zimbabwe Electricity Distribution Co. said on Twitter Wednesday. According to Bloomberg, the southern African nation has a non-binding agreement to import up to 400 megawatts from Eskom, while an additional 100 megawatts is imported from Mozambique. The availability of power from utilities with which Zimbabwe has power-purchase agreements has an impact on the performance of the national grid, especially at a time when the country is experiencing a deficit, Zesa Holdings spokesman Fullard Gwasira said by text message. “The corresponding decline in imports will be reflected in increased load shedding,” he said, using the local term for rolling blackouts. The country spends $23 million monthly on electricity imports, according to the energy regulator.
  • South African retail sales rose 1.1% year-on-year in August following a 2% increase in July, Reuters reports. On a month-on-month basis, sales were down 0.9% and up 1.8% in the three months to the end of August compared with the same period last year, Statistics South Africa reportedly said on Wednesday.
  • Mediclinic International Plc was among the top movers upwards on the JSE on Wednesday. It rose about 4% on the news that it expects higher first-half core earnings, as the healthcare company’s Swiss business adjusted to regulatory changes and its Southern Africa and Middle East operations performed well. The group, which is listed in London and Johannesburg, said reported revenue for the six months ended Sept. 30 was about 9% higher, reports Reuters.
  • The financial industry is prepared for Brexit, regardless of the state of political talks, with hundreds of banks and money managers primed to move thousands of employees to their European Union bases to weather the fallout, according to a new study. That’s according to Bloomberg, which quotes New Financial, a London group that analyzes the sector. New Financial said in a report on Wednesday that it has identified 332 firms that have relocated part of their business, shifted staff or set up new entities in the EU — including 60 that have done so since March, when Brexit was originally due. Dublin has won the most business ahead of Luxembourg and Paris, says Bloomberg. “Many large firms have had their new entities in the EU up and running for months, and having spent tens or hundreds of millions of dollars on relocation are not going to move business back to the U.K. anytime soon,” New Financial’s Eivind Friis Hamre and William Wright said in the report. The study, says Bloomberg, comes as Brexit negotiations between Prime Minister Boris Johnson and the EU are on the brink of collapse, raising the prospect that the U.K. could leave the bloc without a deal or transition period on Oct. 31. A no-deal exit, which has been rejected by the U.K. parliament, risks economic turmoil for Britain and major market volatility in the immediate aftermath.