Not even debt swelling to $35bn fazes Eskom’s bondholders

Bondholders of Eskom appear to be taking South Africa’s President Cyril Ramaphosa at his word.

Even as data showed the state-owned power utility’s debt is approaching $35 billion, yields on the company’s dollar bonds ticked lower on Wednesday as investors bet the government would step in to prevent any chance of a default.

Read: Eskom’s turnaround imperiled as debt approaches R500bn

“Eskom is too big to fail,” Ramaphosa said at an investor conference organised by Goldman Sachs in Johannesburg, his first engagement with businesses since he won a five-year term in May 8 elections. “If Eskom fails, this economy fails.”

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Yields on Eskom’s $1.75 billion of 2021 securities dropped three basis points to 6.31%, and are trading well below the average of 7.24% over the past year. The yield is down 14 basis points since May 8, when Ramaphosa’s ruling African National Congress won a majority in parliamentary elections. Rates on dollar bonds due 2023, 2025 and 2028 also declined.

Eskom’s dollar bonds are rated CCC+ at S&P Global Ratings, seven levels below investment grade and five steps lower than South Africa’s sovereign assessment.