Eskom bondholders sound alarm as fuel costs surge on Ukraine war

The surge in oil prices is raising alarms for Eskom bondholders, amid fears about increased credit risk.

The premium investors demand to hold Eskom’s 2028 dollar bonds rather than similar-maturity US Treasuries has widened more than 100 basis points since the beginning of February to 711, a 15-month high. And the cost of insuring the utility’s dollar debt against default for five years jumped 15 basis points this month to the highest since April.

Eskom started rotational power cuts on Monday for the first time in four weeks after breakdowns at multiple generating units. It’s been using diesel-fuelled turbines as an emergency measure and is concerned about cost overruns given the recent spike in crude prices, according to CFO Calib Cassim.

The utility could “get to a point where we just don’t have the funds” to run the emergency units, Cassim said in a virtual briefing on Tuesday.

Eskom is “really concerned” about the effect the war in Ukraine will have on coal and fuel prices, COO Jan Oberholzer said in the same briefing.

Rising fuel costs will complicate Eskom’s plan to cut debt and reduce carbon emissions.

The company, which supplies almost all SA’s power, has R392bn ($26bn) of debt. The utility has said the liabilities need to be cut to R200bn for it to be sustainable and accept support pledged by rich nations to help reduce SA’s dependence on coal.

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