The rand weakened to two-month lows in late afternoon trade on Tuesday, giving up gains earlier in the session, after ratings agency Moody’s said power utility Eskom urgently needs a turnaround plan as its capital structure is unsustainable.
At 1535 GMT, the rand was 0.4% weaker at R14.98 per dollar, having hit a session low of R15.00 – its weakest since June 7. The currency had also fallen sharply on Monday after an escalation in the US-China trade war.
Cash-strapped power utility Eskom said last week it expects to make a R20 billion ($1.34 billion) net loss in the current 2019/20 financial year after the R20.7 billion loss in 2018/19, exposing the country’s public finances to grave risks at a time of fiscal constraints.
The government has proposed giving Eskom a R59 billion cash injection over the next two financial years, in addition to R230 billion of bailouts spread over the next decade.
“The current capital structure is not sustainable, absent continued government cash transfers, indicating a strong and urgent need for a longer term strategic turnaround plan,” Moody’s said in a research note.
Moody’s is the last of the three big international ratings agencies to have South African debt at investment grade. South Africa’s rating with S&P Global Ratings and Fitch has been non-investment grade since 2017.
On the bourse, stocks snapped a two-session losing streak as a rout in global markets eased as signs Beijing is keen to stem the yuan’s slide soothed markets unnerved by the Trump administration’s labelling of China as a currency manipulator.
The Johannesburg All-Share index closed 0.16% firmer at 55,062 points, while the Top 40 index ended the day 0.1% up to 49,113 points, after both weakened to levels last seen on May 30 on Monday.
The top performer was Rebosis Property Fund, which surged 14.29% to 56 cents after it said it is considering a merger with Delta Property Fund.
“It is positive in the sense that if they put together their balance sheets they might have a picture that looks different. It’s a great opportunity to save both from this tough internal and external environment they face,” Inkunzi Investments director Owen Nkomo said.
Gold stocks continued to shine, with prices consolidating near the highest in more than six years as the trade war drove investors to safe-haven assets. The Gold Index closed 1.83% firmer.
“Gold is positioned to remain one of the prime destinations of safety this week,” Lukman Otunuga, Senior Research Analyst at FXTM said in a note.
The yield on the benchmark government bond due in 2026 shed a single basis point to 8.43%.