![\"\"](\"https:\/\/mybroadband.co.za\/news\/wp-content\/uploads\/2023\/02\/Eskom-dollar-yields.jpg\")
<\/a><\/p>\n\u201cWe would encourage investors to add ahead of the February budget announcement in which the government will provide details on Eskom debt assumption,\u201d said Zafar Nazim, a credit analyst at JPMorgan Chase Bank, in a note to clients.<\/p>\n
The company added Eskom bonds at the end of last year, according to filings data compiled by Bloomberg.<\/p>\n
\u201cEskom should now be considered an extension of the sovereign, and bonds should trade as such,\u201d Nazim said.<\/p>\n
EM Frenzy<\/h2>\n
Most emerging-market debt is having a banner start to the year amid bets the Federal Reserve will slow or halt interest-rate increases and China\u2019s reopening will mitigate a global growth slowdown. But still Eskom\u2019s notes have outperformed.<\/p>\n
Yields on Eskom dollar securities due 2028 have dropped 220 basis points since the start of the year to 9.30% as of Wednesday. That\u2019s a premium of more than 300 basis points over similar-maturity South African government dollar notes. Yields on 2025 securities have plummeted 297 basis points to 9.21%, offering a spread of nearly 400 basis points.<\/p>\n
About 80% of Eskom\u2019s bonds come with an explicit government guarantee, and President Cyril Ramaphosa has said the company is \u201ctoo big to fail\u201d \u2014 implying that the state would back the company if it ran into any troubles. The state is now considering\u00a0a takeover<\/a>\u00a0of some of its $22.8 billion in liabilities as it seeks to restructure the utility and restore financial sustainability.<\/p>\n Some investors are steering clear. Eskom\u2019s challenges are not just financial, and the hurdles to overcoming them are steep, said Manuel Mondia, a Zurich-based analyst at Aquila Asset Management.<\/p>\n The power company\u2019s troubles have led to 13 consecutive months of rolling power cuts, leaving South Africans without electricity for as much as eight hours a day, according to Bloomberg calculations. The cash-strapped utility already relies on government support to run its operations and service its debt.<\/p>\n Goldman Sachs Group Inc. has described the company as the biggest threat to Africa\u2019s most industrialized economy. The South African Reserve Bank cut its forecast for economic growth this year to 0.3%, from 1.1% previously, citing the energy crisis, with Governor Lesetja Kganyago saying the blackouts will cut an estimated 2 percentage points off output this year.<\/p>\n Transferring Eskom\u2019s debt to the state would require modifications to bond agreements, a complex and uncertain process needing approval from holders of the securities, said Mondia.<\/p>\n And repeated cash injections have done little to ease operational and organizational problems<\/strong><\/a>, with Chief Executive Officer Andre de Ruyter announcing his resignation in December amid allegations that he\u2019d\u00a0been poisoned<\/strong><\/a>.<\/p>\n \u201cWe got rid of our exposure as the yield attached to the issuer was relatively low when you think of the amount of issues they need to face, independently of the government support,\u201d Mondia said. \u201cThe news flow including failures at plants and accusations of attempted murder definitely raised some red flags which pushed us out of the position.\u201d<\/p>\n But Nazim at JPMorgan said such concerns don\u2019t preclude an extended rally, with a call for non-guaranteed 2028 bonds to trade no more than 150 basis points wide of the sovereign.<\/p>\n \u201cCreditors should not get too hung up on record rolling blackouts and the resignation of the company\u2019s well-respected CEO,\u201d Nazim said. \u201cCreditors\u2019 fortunes and the company\u2019s credit profile are largely tied to tariff decisions and the government\u2019s financial support. We believe that both factors are moving firmly in the right direction.\u201d<\/p>\n Eskom is not very good at keeping the lights on, but it’s providing excellent profits for bondholders.<\/p>\n","protected":false},"author":341034,"featured_media":460922,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_sma_x_autopost_status":"idle","_sma_x_autopost_error":"","_sma_x_post_id":"","_sma_facebook_post_id":"","_sma_instagram_post_id":"","_sma_threads_post_id":"","_sma_x_attempts":0,"footnotes":""},"categories":[17],"tags":[181,51867],"class_list":["post-478791","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-technology","tag-eskom","tag-loadshedding"],"_links":{"self":[{"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/posts\/478791"}],"collection":[{"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/users\/341034"}],"replies":[{"embeddable":true,"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/comments?post=478791"}],"version-history":[{"count":0,"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/posts\/478791\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/media\/460922"}],"wp:attachment":[{"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/media?parent=478791"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/categories?post=478791"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/tags?post=478791"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}\u2018Red Flags\u2019<\/h2>\n
<\/a><\/p>\n
\nNow read:\u00a0Eskom forced to pay exorbitant prices for diesel<\/a><\/h2>\n","protected":false},"excerpt":{"rendered":"