Rand Slumps as Eskom Rescue Plan Falls Short of Expectations
Rand Extends Decline as South Africa Unveils Eskom Rescue Plan
South Africa’s rand slumped and sovereign bond yields rose as the government unveiled a much-anticipated rescue plan for Eskom Holdings SOC Ltd. that failed to reassure investors about the power utility’s financial sustainability.
While the plan included exposing Eskom to more competition, lowering fuel costs and selling non-core assets, it had no details on the government’s strategy to deal with the company’s debt pile, deferring that to Wednesday’s mid-term budget statement or later. The appointment of a permanent chief executive officer was also put off, leaving the company rudderless at a time when it’s facing major operational challenges.
“There was no discussion of Eskom debt restructuring, which is the crux of the problem investors care about, while other key announcements like a new CEO have been delayed until next week,” said Simon Harvey, a London-based market analyst at Monex Europe Ltd. “The real takeaway is that the lack of decisiveness in today’s announcement increases the importance of tomorrow’s medium-term budget statement. In that respect, today’s market volatility is just a taster for what is to come.”
The rand fell as much as 1.1%, and traded 0.7% down at 14.6679 per dollar by 1:22 p.m. in Johannesburg, the worst performance out of 24 emerging-market currencies monitored by Bloomberg. Yields on 2028 sovereign dollar bonds jumped 10 basis points to 4.65%.
Bailouts amounting to $8.7 billion for Eskom are straining government finances and may push the budget deficit to the widest in a decade. More details about the fiscal framework will be revealed by Finance Minister Tito Mboweni on Wednesday, the next hurdle for the rand. Moody’s Investors Service, the only major company still to rate South Africa’s debt as investment grade, is scheduled to publish a review of the assessment on Friday.
“The initial reaction implies that investors were hoping to see far more details regarding debt restructuring, but perhaps they should be more patient and wait for Finance Minister Mboweni to present his mid-term budget on Wednesday,” said Piotr Matys, an emerging-markets strategist at Rabobank in London. “It’s fair to say that the bar for Mboweni to satisfy the market seems to be set relatively high, especially with Moody’s scheduled to review South Africa on Friday.”
To contact the reporter on this story: Robert Brand in Cape Town at rbrand9@bloomberg.net
To contact the editors responsible for this story: Dana El Baltaji at delbaltaji@bloomberg.net, Hilton Shone, Gordon Bell
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