South Africa’s decision to more than double its financial support for Eskom is “credit negative” for the sovereign rating as it’s an additional drain on the budget, Moody’s Investors Service said.
While the government may try to absorb some the costs of the plan to help rescue the cash-strapped power utility in the medium-term budget in October, the “room to manoeuvre is extremely constrained,” Moody’s said in a report on its website. The rand weakened and benchmark bond yields rose for a fifth day.
“The lack of a strategy to return Eskom to more stable financial situation that would reduce the need for government support exacerbates the problem for the government,” it said.
Finance minister Tito Mboweni this week announced a second multibillion-rand bailout for Eskom within five months, aid that may force the cash-strapped government to increase borrowing and taxes. The R59-billion cash injection over the next two years adds to the three-year, R69-billion bailout unveiled in the budget in February.
Moody’s is the only major credit-rating company that still assesses South Africa’s debt at investment grade.
The rand erased earlier gains, weakening as much as 0.7% to R13.97/US$ by 10.54am in Johannesburg. Yields on rand-denominated government bonds due in December 2026 climbed five basis points to 8.14%. — Reported by Gordon Bell, with assistance from Colleen Goko, (c) 2019 Bloomberg LP