S&P Sees South Africa Avoiding Distressed Exchange of Eskom Debt

S&P Global Ratings expects South Africa’s government to fulfill its commitments to investors in Eskom Holdings SOC Ltd. as it finalizes a plan to tackle the state-owned utility’s massive debt burden, Bloomberg News reported. Finance Minister Enoch Godongwana said last month the government may shift between one-third and two-thirds of the power company’s debt of about 400 billion rand ($23.2 billion) onto its own balance sheet and attach strict conditions to the relief. Details, including the quantum and terms, of the transfer are expected to be announced in February’s budget. “We currently assume that the government will fulfill the original obligations to existing investors to avoid a distressed exchange,” S&P Global Ratings said in statement reviewing South Africa’s junk-rated debt Friday. The ratings company considers distressed exchanges, where debt holders accept losses or haircuts out of fear that troubled entities won’t be able to fulfill their original commitments, tantamount to a default. S&P assumes the government will take on 250 billion rand, or almost two-thirds, of Eskom debt, equivalent to about 3% of gross domestic product, from 2023. While the higher costs of servicing sovereign debt will likely be offset by reducing or scrapping planned transfers to Eskom, there’s a risk the utility may need additional support to close liquidity gaps and meet its maintenance and investment plans, S&P said. Read more.