09 February 2019, News Wires — South African President Cyril Ramaphosa’s plan to split struggling state power utility Eskom is a positive show of intent to investors, although a lack of detail has raised concerns that change will take years to deliver.
Eskom, which produces more than 90 percent of South Africa’s electricity and employs 48,000 people, is a lynchpin of Africa’s most developed economy but has racked up debts of $31 billion.
Ramaphosa said on Thursday that to avert an economic crisis, Eskom’s generation, transmission and distribution would become separate entities under an Eskom holding company, leaving its inefficient and unwieldy monopoly intact.
Ahead of a May parliamentary election, Ramaphosa also said another Eskom bailout would be laid out in this month’s budget.
What markets were hoping for was the creation of three independent companies that could more easily cut costs, raise finance and be partially privatized in the future.
“The risk is very little will change in this structure,” Peter Attard Montalto, head of capital markets research at Intellidex, said.
“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.
Max Wolman, investment director at Aberdeen Standard Investments, which holds Eskom debt, said it was debatable whether the restructuring would happen soon.
Most Eskom dollar-denominated bonds eased on Friday, with the 2025 bond slipping 1 cent to trade at 97.59 cents in the dollar, its lowest level in over a week.
The bonds had chalked up stellar gains in previous weeks, with many seeing their best monthly gains on record, as expectations built of a major restructuring.