South Africa’s state-owned power utility Eskom will have to raise most of its funding needs from domestic bond issues because of a lack of liquidity in international markets, ratings agency Fitch said on Monday.
Eskom has launched a R385-billion expansion programme over five years to boost power supply in Africa’s biggest economy, but has had to delay some projects as it failed to raise all the money needed.
Fitch said appetite for bonds may be limited as South Africa battles to recover from its first recession in 17 years.
”Investor appetite for this level of issuance is however uncertain at this point, and would depend on further market development and a real recovery in the South African economy, which is not expected until late 2010,” it said in a statement.
”As such, corporate issuers are likely to remain under pressure in the medium term.”
South Africa’s government has ramped up its bond issuance to help fund a widening budget deficit, and analysts warn this may crowd out demand for corporate paper.
Eskom posted the biggest full-year loss in the company’s history for the year to end-March, and is struggling to raise capital to built power stations and avoid another power crisis like the one the country experienced last year.
Eskom said it would rely on an increase in tariffs, borrowings and government loans to pay for the expansion.
The utility was granted a 27,5% tariff rise last year and a 31,3% one this year, fuelling inflation fears, but the national energy regulator says Eskom might need further increases of up to 60%.
Eskom submitted its latest application to the regulator last week, but has yet to disclose what figure it had asked for.
The National Treasury said in its 2009 budget in February it would offer Eskom loan guarantees of R175,97-billion over five years to help it raise funds, on top of a R60-billion, three-year loan announced last year.
Fitch has Eskom’s long-term local currency ”A” rating on a negative outlook, while Standard & Poor’s placed Eskom on credit watch pending the execution of government guarantees. — Reuters