Rand slumps on Eskom fears, US inflation

The rand sank more than 1% on Wednesday as concerns over state power firm Eskom were compounded by a firming dollar after a measure of US inflation came in stronger than expected.

At 1515 GMT the rand was 1.1% weaker at R13.91 per dollar, stretching losses to nearly 3% since Eskom intensified electricity blackouts on Monday.

The rand, aided by signs of progress in the US-China trade dispute, had steadied in the previous session after being battered to a three-week low on Monday and opened Tuesday trade at R13.76. However, the sell-off resumed as more details about Eskom’s financial stress came to light.

As the cash-strapped utility cut electricity for a fourth straight day, the government said the firm was technically insolvent and would “cease to exist” at the current trajectory by April without a bailout.

“If the government were to absorb R100 billion ($7 billion) worth of Eskom’s debt it would trigger a leap in public debt, and if unaccompanied by a credible turnaround strategy at Eskom, could precipitate further credit downgrades,” Standard Bank chief economist Goolam Ballim said.

Markets have been unnerved by the crisis, more so with the annual budget due on February 20 and national elections in May.

Moody’s, the last of the top three ratings firms to rank the country’s sovereign debt at investment level, is due to make its next credit assessment in late March.

“The Eskom worries are still lingering, but the inflation numbers from the US also triggered a surge in the dollar,” said Lester Davids of Unum Capital.

Bonds were weaker, with the yield on the government 10-year issue rising 14 basis points to 8.93%.

Stocks rose as rand-hedged shares, which make the bulk of their revenue outside South Africa and tend to rise as the currency weakens, benefited from a fall in the rand.

The benchmark Top 40 index rose 1.22% to 48,389 points while the All-Share index gained 1.08% to 54,543 points.

Among the biggest gainers, Richemont rose 6.29% to R100.95, MediClinic gained 3.04% to R55.95 and British American Tobacco closed up 4 % at R506.26.

Petrochemical firm Sasol was also among the top gainers on the blue-chip index. The company closed 5.59% higher at R411.90 after shares were boosted by production coming online from the first of seven units at its Lake Charles chemical plant in the United States.