Eskom’s Risk Premium Dwindles as Loss Narrows, Debt Load Eases

(Bloomberg) -- Investors appear to be comfortable holding Eskom Holdings SOC Ltd.’s bonds even after the state-owned electricity company reported a fourth consecutive annual loss as it continues to service a mountain of debt.

The yield premium of Eskom’s 8.45% dollar notes maturing in 2028 over U.S. Treasuries narrowed to the least in more than two months on Wednesday. The bonds, unlike the majority of the company’s debt, are not guaranteed by the government.

Eskom cut losses to 18.9 billion rand ($1.31 billion) in the year through March, from 20.8 billion rand a year earlier, Chief Executive Officer Andre De Ruyter said at a briefing on Tuesday. After growing unabated for about 15 years, the utility’s gross debt fell 17% to 401.8 billion rand, mostly thanks to a cash injection from the government.

The company’s inability to provide sufficient power to meet the nation’s needs and its reliance on state bailouts to stay afloat have been a major drain on the economy. Plans to build new capacity have been riven by corruption, cost overruns and government vacillation over what form of energy to use and the role private producers should play.

But bondholders seem to have confidence in a plan to restructure the utility into transmission, generation and distribution units to make it easier to manage, and De Ruyter’s pledge to cut costs and stamp out the graft that’s plagued the company for years.

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