Can Eskom keep the lights on?
Eskom is currently bringing South Africa to its knees as load shedding is happening across the country. This isn’t just a problem at the corporate level – restaurants are empty and small businesses are suffering as they simply don’t have access to power. Even if they can afford generators, energy has become much more expensive.
The Eskom story is that of a classic downward debt spiral. They came out publicly last week asking the government to write off 100 billion rand’s worth of debt just so that they could keep the lights on. They are running on coal powered stations that were meant to have been decommissioned 20 years ago. There is a definite need for restructure, and with few viable options, Cyril Ramaphosa may need to look at some type of privatisation.
We believe that South African guaranteed Eskom debt won’t suffer, but we would avoid going long Eskom credit without a sovereign guarantee. More generally, we are pessimistic in the short term on South Africa and the Rand, although it needs to be caveated that Brexit seems to have a more significant impact on the Rand than does any news flow from South Africa, so expect volatility and capitalise on any Rand strength as it appears.
Stefano Marani, APQ Global IAC Member