A meltdown at some of South Africa’s biggest state companies is intensifying, placing the nation’s finances at risk and frustrating President Cyril Ramaphosa’s efforts to attract new investment and resuscitate a moribund economy.

While monolithic power utility Eskom, which is teetering on the brink of insolvency, has dominated recent headlines, arms manufacturer Denel, the SABC and South African Airways have joined the list of the financially destitute entities scrambling for bailouts. The government guarantees most of their debt, so allowing them to go bust isn’t an option, even if it breaks its expenditure ceiling.

Official inquiries have shown that state companies were looted of billions of rand and subjected to constant management upheaval during former President Jacob Zuma’s rule. While Ramaphosa has sought to tackle the graft since succeeding Zuma in February last year and replaced the boards and management of several state companies, their debt has continued to accumulate and national treasury projections shows the trend continuing until at least March 2021.

“The state-owned entities are a huge risk in terms of government finances,” said Johann Els, chief economist at Old Mutual Investment Group in Cape Town. “We can’t just spend more on Eskom, SABC and Denel or take their debt onto the government’s balance sheet without some concrete plans” to ensure they cut costs and become sustainable, and there is no sign of that happening, he said.

The debt burden of the state companies is a risk to South Africa’s last remaining investment-grade credit rating, Moody’s Investors Service said in April. The loss of that rating could trigger a massive outflow of funds from the economy, because it would preclude a number of index-linked funds from retaining their investments.

Investors see an increased likelihood that the government will have to increase sovereign-bond issuance to bail out Eskom, which is by far the biggest of the state companies and has amassed more than R440-billion in debt. The yield premium of 2048 securities over 2026 notes widened 50 basis points this month to 181, the most on record.