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Rand strengthens as Eskom proposal soothes traders’ nerves

The PIC is proposing to convert its $6.4bn holding in Eskom into equity in return for a say over the utility’s management.

The rand rose to the strongest level since February after Eskom’s biggest bondholder was said to have a rescue plan for the state-owned company.

Read: Eskom gets rescue option as PIC proposes debt-equity swap

The currency, which was already being buoyed by a global rally, added as much as 0.9%, bringing the dollar-rand pair close to crossing below its 200-week moving average. The nation’s 2026 bonds rallied, putting the yield on course to closing below 8% for the first time in more than a year.

The Public Investment Corp. wants to convert its $6.4 billion holding into equity in return for a say over Eskom’s management, including board representation, said five people with direct knowledge of the talks.

“A debt-equity swap means that a creditor becomes a shareholder, and if the amount of debt swapped is large enough, even potentially a controlling shareholder. In my lingo, that is tantamount to privatisation, albeit in stealth mode,” said Cristian Maggio, the head of emerging-market strategy at TD Securities in London.

“Personally, I don’t think it’s going to happen unless the government accepts that privatisation is needed. It would be a very welcome development, but it ain’t gonna happen.”

A plan for the struggling utility would be a relief for government bonds and the rand, which have been weighed down by concerns over the impact of bailouts on the nation’s finances. The potential proposal coincides with a rally in emerging markets, which advanced on bets the US will cut borrowing costs this month for the first time in more than 10 years.

The rand added 0.9% as of 2:29 pm in Johannesburg to 13.86 per dollar. The main stock gauge was little changed.

Eskom, which supplies about 95% of the electricity used in Africa’s most industrialised economy and has been labeled “too big to fail” by President Cyril Ramaphosa, has more than R440 billion ($32 billion) of debt, and doesn’t generate enough cash to service it. The National Treasury is finalising a bailout plan over and above the R68 billion pledged in the February budget.

© 2019 Bloomberg L.P.

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The PIC having a say about the ESKOM management??

This must be a misprint or a joke?

And poor old Joe the government employee is paying for the privileged.

It just shows in what a state this country is.

Government pensions are Defined Benefit, so unfortunately you & I taxpayers are going to be carrying the can…

well if the pensions are defined benefit, then we just downgraded the SA taxpayer from a creditor to a shareholder. which means, SA tax payers have been screwed over, again. But, based on the number of real entrepeneurs emigrating these last few months, i think this burden is going to fall on a lot less people than can carry it

Eskom does not influence the rand, US interest rates does.

Lmaooooo what?

Billions of dollars of debt in a state owned entity doesn’t influence the rand. Yeah okay.

Eskom employees are also members of the GEPF. This bailout means that they are using their pension savings to fund their salaries. Eskom is a zombie and is kept on this PIC-sponsored life-support system to enable the looting by BEE coal companies. Eskom workers are making charitable donations towards BEE coal companies out of their pension funds. Shanduka is a BEE coal company that does business with Eskom. The PIC, government employees actually, will be providing cashflow to the presidents’ original BEE company. When a person holds a beneficial interest in a Trust structure, that person is not the legal owner of that interest. Such a person is not a direct owner, but the implications are the same.

Government employees, backed by the taxpayer, are donating money to this well-connected Trust. It is quite interesting to see how benevolent these labour union members have become….maybe they simply do not have a clue. Ignorance is bliss.

The Rand is not strengthening due to an Eskom solution ….it’s because the dollar is weakening on the proposed US interest cut! And the Pound is weakened by the latest British Brexit joke….Please do not suggest that the Rand has any power to move in any direction…. it is a totally reactive currency and has been for the last 9 years!

That’s not entirely true in my view.

When Zuma fired Nene, the Rand went 16 to the dollar. When SA economic data is released there is generally some movements. Even when big FX transactions happen, the Rand moves in certain directs. Lots of elements at play and it’s not just US int rates and UK politics.

and now its weaker…what now?…it is mostly the $ not Eskom

The PIC buys bonds in a business that cannot make a profit – seems like a poor investment.
Then, they want to convert their bond into shares so that this government institution can become a shareholder of the same government’s failed Eskom, to get board representation?? – even worse investment.
PIC does not seem able to manage its own businesss so it wants to manage a failed energy company. PIC management probably sees some lucrative board jobs at Eskom.
Unbelieveable, totally boggles my mind.

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