President Cyril Ramaphosa’s plan to split struggling state power utility Eskom is a positive show of intent to investors but a lack of detail has raised market concerns that concrete change will take years to deliver.
Eskom, which produces over 90% of South Africa’s electricity and employs 48 000 people, is a lynchpin of Africa’s most developed economy but is drowning in over R450 billion of debt.
Facing a Parliamentary election on May 8, Ramaphosa said on Thursday that to avert an economic crisis, Eskom’s generation, transmission and distribution businesses would become separate entities.
Crucially, President Ramaphosa added that the newly created units would remain under an Eskom holding company, meaning its inefficient and unwieldy monopoly would remain.
He also said another Eskom bailout would be laid out in the budget later this month.
What markets were hoping for was the creation of three independent companies that could more easily cut costs, raise finance and be partially privatised in the future.
Most Eskom dollar-denominated bonds eased very slightly on Friday, with the 2028 bond softening 0.1 cent to trade at 103.22 cents in the dollar.
However, Eskom’s bonds had chalked up stellar gains in previous weeks, with many issues seeing their best monthly gains on record.
“The risk is very little will change in this structure,” said Peter Attard Montalto, head of capital markets research at Intellidex.
“The intention may well be to have this as a first step and then separate out after that from the umbrella. However, we think the market underestimates how complex this separation process will be,” he added, forecasting it could take two years.