Eskom Yield Jump May Be Harbinger for Company’s Credit Rating

(Bloomberg) -- The last time the gap between between Eskom Holdings SOC Ltd.'s guaranteed and unguaranteed tranches of dollar notes was this great, a downgrade of the company's credit rating was looming.

The yield premium on the state-owned power producer's dollar bonds without South African government surety over those with its backing has widened 39 basis points since the start of the year to the most since November 2020.

That was the moment, 15 months ago, when rating companies Fitch Ratings and Moody's Investors Service Inc. sank Eskom's assessment deeper into junk, with the latter stating the decision was driven by the “high probability of a debt reorganization.”

“Most debt problems are solvable by the application of money,” Omega Collocott, a credit analyst at S&P Global Ratings, said Wednesday. “The point in Eskom's case is that the sums of money are rather vast.”

Collocott, along with colleague Rishav Singh, affirmed Eskom's credit at speculative grade with the outlook still negative two months ago, highlighting that the government's support package would be insufficient.

“Government has allocated the minimum funds necessary to keep the lights on -- to not create moral hazard and to avoid adding strain to the fiscus,” Collocott said in an interview. “Restructuring of Eskom debt is a default risk not only for the company, but also for government. We will watch very closely for anything that looks like a restructuring of debt.”

Rothschild Hired by Eskom Creditors to Help Steer Debt Plan

Grid Collapse Concern Prompts Eskom to Resume Rolling Power Cuts