By Rachel Savage
JOHANNESBURG, Feb 22 (Reuters) - Investors were mostly
positive about the South African government's plan to take on
more than half of Eskom's debt over the next three years,
viewing it as a path back to sustainability for the troubled
state utility.
The government plans to take on 254 billion rand ($14
billion) of Eskom's 423 billion rand debt, which the National
Treasury said was at risk of default.
That was the upper end of the one-third to two-third range
that Finance Minister Enoch Godongwana had previously set out
last year, prompting the rand and Eskom's international dollar
bonds to rally as investors welcomed the cut in debt service
costs.
"It's slightly more than what the market was expecting,"
said Max Wolman, a senior portfolio manager at Abrdn, which
holds Eskom's overseas bonds. "Interest costs should come down
and that should make Eskom a viable ... going concern."
The Treasury said that it would settle 184 billion rand that
Eskom owes over the next three years via a loan that converts to
equity in the utility and then take on 70 billion rand of debt
directly in the 2025/26 financial year.
The phased approach speaks to the government's fiscal
caution, "which is positive for investor confidence," said
Khanyisa Phika, an economist at Alexforbes, a South African
financial services firm that holds Eskom debt.
"We are certain that government is actually serious about
turning around Eskom," she added.
"It's highly likely that it's credit positive for Eskom and
credit-neutral for the sovereign," Jones Gondo, an analyst at
Nedbank, said of the plan.
"If they don't meet the conditions of operational
performance then the loans they're getting from the government
don't convert into equity and that slows down the credit
trajectory."
Eskom is implementing the worst power outages on record
as it fails to generate enough electricity. Creaking coal-fired
power stations, allegations of corruption and mismanagement are
among factors that have left South Africa with the deep power
deficit.
The government has struggled for years to overhaul the
company, which has received 263.4 billion rand in bailouts since
2008/09.
Godongwana told Reuters that there would be no more bailouts
for Eskom after this one, adding that if it failed to comply
with the debt relief conditions then "heads must roll".
These conditions include using the debt relief to only
settle debt and interest payments and requiring Eskom to
prioritise maintenance of its dilapidated coal power stations
and capital expenditure on transmission and distribution.
But some investors said more clarity was required on these
conditions and their enforcement.
"Other than withholding subsequent relief payments, there is
no indication of other steps Treasury will take to assist the
utility to return to sustainability," said Raphi Rootshtain, a
portfolio manager at South African financial services firm
Sasfin Wealth.
($1 = 18.1567 rand)
(Reporting by Rachel Savage; Editing by Olivia Kumwenda-Mtambo
and Jane Merriman)
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