Sat, 14 Dec 2019

Bond investors aren't showing much faith in Eskom's new boss.

Yields on the state electricity company's 2021 dollar bonds jumped the most in more than three months after the appointment of Andre de Ruyter as chief executive officer on Monday. The premium of two-year over 10-year dollar yields narrowed, suggesting investors are concerned De Ruyter won't be able to address the debt-laden firm's short-term challenges.

De Ruyter, currently CEO of packaging company, Nampak, has considerable corporate experience, though not at a utility. His appointment comes at a time when Eskom is undergoing a transformation that will require technical and financial knowledge as well as an ability to deal with the government and labor unions. A R138bn government bailout has bought it just two years to effect a turnaround and deal with its R450bn of debt.

De Ruyter's appointment "shocked the market somewhat as it was a name that no one had expected," Michelle Wohlberg, a trader at FirstRand in Johannesburg, said in a client note. "As the new CEO has no public-side experience, the market is not sure on him lasting long."

Yields on Eskom's $1.75bn of securities due 2021 climbed 32 basis points on Tuesday to 5.47%, the highest in almost eight weeks, after jumping 17 basis points on Monday. The yield spread of the 2021 notes over 2028 bonds narrowed 31 basis points in the two days.

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Besides having to keep the lights on and complete Eskom's build program, De Ruyter's other tasks will be to ensure Eskom gets its debt burden under control and becomes financially sustainable. He'll also have to help implement a government decision to split the utility into transmission, generation and distribution units under a state holding company - a plan opposed by unions that fear it will lead to privatization and job losses.

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