Comeback Kid Eskom Boosts South African Corporate Bond Sales

(Bloomberg) -- Eskom Holdings SOC Ltd.’s comeback in the domestic bond market may propel corporate debt sales in South Africa to another record year.

Year-to-date debt issuance by South African companies including state-owned enterprises has edged ahead of the amount sold in the same period in 2017, according to data compiled by Bloomberg. Issuers have raised 36.9 billion rand ($3.1 billion) this year, an increase of 1.7 percent. Companies sold 148 billion rand, a record, in the whole of last year.

The year-to-date increase is mostly related to borrowing by Eskom, which increased to 6.4 billion rand, compared with 716 million rand in the comparable period last year. The biggest issuer in 2018 so far is Standard Bank Group Ltd., which raised 25 billion rand in 23 sales.

Eskom, which is South Africa’s biggest corporate borrower, lost favor with investors including Futuregrowth Asset Management amid concerns about governance and a series of scandals, including allegations of corruption linked to the politically connected Gupta family. Its board was overhauled in January and the utility plans to recover almost 70 billion in costs, it said earlier this month.

The utility said in January it would return to the domestic and international bond markets this year, after publishing delayed financial results a day before a possible suspension of its debt instruments from the Johannesburg Stock Exchange. It issued a total of 3.8 billion rand of debt in 2017, according to data compiled by Bloomberg.

“The change in sentiment has been demonstrated by the investors’ support for Eskom’s domestic bonds,” Eskom’s media department said in an emailed response to questions. “Eskom’s funding plan for the 2018/19 year includes issuance of approximately 15 billion rand in the domestic markets.”

Mike van der Westhuizen, a portfolio manager at Citadel Holdings Ltd., said most of Eskom’s new issuance will go toward paying off existing shorter-term debt.

“This will be more expensive for the already financially strained state-owned entity given its rapidly increasing borrowing costs over the past year,” Van der Westhuizen said. “As, when and if the Eskom turnaround starts to show signs of progress and it cleans up its balance sheet the market will be more willing to take up new issuance.”

To contact the reporter on this story: Colleen Goko in Johannesburg at cgoko2@bloomberg.net.

To contact the editors responsible for this story: Dana El Baltaji at delbaltaji@bloomberg.net, Robert Brand, Hilton Shone

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