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The premium on South Africa’s state-owned power utility’s dollar bonds with government guarantees compared with those without has narrowed to its lowest level since the securities began trading in 2018.
Investors are growing more confident in Eskom Holdings debt, buoyed by South Africa’s recent credit-outlook upgrade, improved operational stability and continued state support.
S&P Global Ratings raised the sovereign’s outlook to positive earlier this a month, a move that also lifted Eskom’s government-related entity assessment. The ratings company cited increased political stability and impetus for reform.
The narrowing of the premium reflects investor optimism that South Africa’s improved fiscal trajectory will bolster Eskom’s ability to meet its obligations even on bonds lacking direct guarantees.
Yields on Eskom’s 2028 dollar bonds without state backing dropped 2 basis points to 7,12 percent by 11:02 a.m. in Johannesburg, a two-week low. The yield has dropped 135 basis points this year.
S&P upgraded Eskom’s long-term global scale foreign and local currency ratings to positive from stable, affirming the utility’s “B” issue rating on senior unsecured debt and the “BB-” foreign currency issue rating on government-guaranteed debt.
S&P listed South Africa’s debt relief package — announced in July last year — as a critical factor supporting Eskom’s improved outlook.
“We base our positive outlook on the ongoing support the group is receiving from the South African government,” said Omega Collocott, primary credit analyst at S&P.
“We expect Eskom’s liquidity position to strengthen and the risk of default to reduce as the ongoing debt relief package is implemented.”
However, Eskom’s stand-alone credit profile is still assessed at “ccc”, which captures its weak business risk profile and highly leveraged financial risk profile, S&P said.
Eskom said the upgrade underscored the progress made in restoring Eskom’s financial health and operational reliability, Dan Marokane, group chief executive, said in a statement. — Bloomberg
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