{"id":261621,"date":"2018-07-27T16:09:43","date_gmt":"2018-07-27T14:09:43","guid":{"rendered":"https:\/\/businesstech.co.za\/news\/?p=261621"},"modified":"2018-07-27T16:09:43","modified_gmt":"2018-07-27T14:09:43","slug":"eskoms-return-to-international-markets-wont-be-cheap","status":"publish","type":"post","link":"https:\/\/businesstech.co.za\/news\/energy\/261621\/eskoms-return-to-international-markets-wont-be-cheap\/","title":{"rendered":"Eskom’s return to international markets won\u2019t be cheap"},"content":{"rendered":"
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It won\u2019t be a cheap welcome back into international debt markets for Eskom Holdings SOC Ltd.<\/p>\n

The state-owned power utility may have to pay up for a planned dollar-bond sale given the state of its finances, according to Futuregrowth Asset Management, South Africa\u2019s biggest specialist fixed-income money manager.<\/p>\n

Eskom has R218 billion ($16.5 billion) of debt due in the next five years, and is only halfway to its target of raising R72 billion in the current financial year, which ends in March. After posting an annual loss this week, the company said it doesn\u2019t have enough operational cash flow to service existing debt, though a $2.5 billion loan agreed with the China Development Bank bought it some breathing space.<\/p>\n

\u201cInvestors are likely to price for Eskom\u2019s worsening credit profile, and so yes, the additional debt will likely be priced accordingly,\u201d said Olga Constantatos, credit and equity process manager at Cape Town-based Futuregrowth, which oversees about $14 billion.<\/p>\n

\u201cWithout a dramatic improvement in Eskom\u2019s revenues, profit and cash flows — which would require Eskom to sell more electricity, at higher tariffs, and drastically cut their cost base — it is hard to see how the balance sheet can withstand additional debt.\u201d<\/p>\n

Eskom, which generates more than 90% of South Africa\u2019s electricity, mandated Barclays Plc, JPMorgan Chase & Co, Standard Bank Group Ltd and Absa Group Ltd to organize a series of fixed-income meetings with investors in London and the US next week, according to a person familiar with the situation, who asked not to be identified because they\u2019re not authorized to speak publicly.<\/p>\n

A benchmark-sized dollar-denominated bond with a maturity of up to 10 years, guaranteed by South Africa\u2019s government, may follow subject to market conditions, the person said.<\/p>\n

Eskom may also explore a second, non-guaranteed, tranche. The company last sold dollar bonds in 2015.<\/p>\n

Eskom is meeting local and international investors, spokesman Khulu Phasiwe said in a text message in response to Bloomberg\u2019s questions, without giving details.<\/p>\n

Too Big to Fail?<\/strong><\/p>\n

A perception that the utility is in the too-big-to-fail category means that there would be appetite for the debt, according to Nedbank Group Ltd.<\/p>\n

Guaranteed notes would hold the sovereign rating of Baa3 at Moody\u2019s Investors Service and BB at S&P Global ratings, while the non-guaranteed securities would be rated B3 and CCC+.<\/p>\n

\u201cWhile stand-alone fundamentals are weak at Eskom, it remains systemically important to the Republic, so every measure will and is being taken to avert a default, because the sovereign can\u2019t afford for that to happen,\u201d said Jones Gondo, a senior credit analyst at Nedbank. \u201cIf you believe there is sufficient implicit support, you might even find it attractive to invest without the guarantee.\u201d<\/p>\n

Yields on Eskom\u2019s $1.25 billion of Eurobonds due 2025 were little changed at 7.8% by 2:53 p.m. in London. The yield has dropped 33 basis points this week, paring its rise since the beginning of April to 107 basis points.<\/p>\n

\"\"<\/a><\/p>\n

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Read: The ironic twist in one of Eskom\u2019s plans to avert financial disaster<\/a><\/strong><\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

It won\u2019t be a cheap welcome back into international debt markets for Eskom Holdings SOC Ltd.<\/p>\n","protected":false},"author":59,"featured_media":258149,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[9874],"tags":[1164,26],"class_list":["post-261621","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-energy","tag-eskom","tag-headline"],"_links":{"self":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/261621","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/users\/59"}],"replies":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/comments?post=261621"}],"version-history":[{"count":4,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/261621\/revisions"}],"predecessor-version":[{"id":261631,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/261621\/revisions\/261631"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media\/258149"}],"wp:attachment":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media?parent=261621"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/categories?post=261621"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/tags?post=261621"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}