Eskom Debt Transfer Plan Is Dead in the Water, Eurasia Says

(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 100 billion rand ($7.1 billion) of its 419 billion rand 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.

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