Dream on Eskom, you probably won’t get a R100bn rescue: analyst

JOHANNESBURG — Talk of Eskom getting the government to take on R100bn of its debt probably won’t happen, says one expert from Eurasia Group. Of course, this is his analysis and our government has proven to (often) avoid rationality when making very important decisions. So anything is really still possible and on the table when considering the way the ANC governs. But the risks of essentially partly bailing out Eskom in this way would certainly increase the likelihood of a downgrade to junk status by Moody’s. – Gareth van Zyl

By Antony Sguazzin and Paul Burkhardt

(Bloomberg) – A plan by South Africa’s struggling state-owned power utility to ask the government to assume about a quarter of its borrowings is probably doomed, according to Eurasia Group Ltd.

Eskom Holdings SOC Ltd. executives told investors in London that they wanted the South African government to take over R100bn ($7.1bn) of its R419bn of debt as part of a rescue plan to allow it to keep operating, according to Sanchay Singla, a money manager at Legal & General who attended a meeting with them.

“Government is unlikely to take over Eskom’s debt as this is very likely to lead to further downgrades of the sovereign rating, particularly a downgrade of the Moody’s rating to junk,” said Darias Jonker, an Africa analyst at Eurasia, a New York-based political risk consultancy. That “would trigger South Africa’s exit from the major emerging market bond index, which would in turn lead to a major sell-off.”

South Africa’s debt is already rated as junk by S&P Global Ratings and Fitch Ratings Ltd. Finance Minister Tito Mboweni told Bloomberg Television on Dec. 1 there were limits to what the Treasury can do for Eskom and the utility should tap the bond market for funding.

The transfer of 100 billion rand of guaranteed debt to the Treasury could “be seen as quite positive as long as it is supported by a viable long-term strategy,” said Okan Akin, a London-based credit analyst with AllianceBernstein Ltd.

Eskom on Thursday announced an eighth consecutive day of rotating power cuts as the utility battles with unplanned outages and breakdowns at its plants.