Why South African banks are scared to death of Eskom (and why you should be too)

The Money Show’s Bruce Whitfield asked Business Day Deputy Editor Carol Paton to discuss the relationship between South Africa’s big banks and its money-pit state-owned enterprises (SOEs).

A summary of what Paton said:

  • Eskom has a large amount of debt - R367 billion - and its debt burden is increasing by R70 billion a year.

  • It is unlikely that Eskom can fix itself just by being run better. This is because even if it cuts costs - which will be difficult – it’s unlikely to sell a lot more electricity in the future.

  • The banks don’t hold much in Eskom bonds, although asset managers hold quite a bit.

  • The reason the banks are spooked by Eskom is not because of what Eskom owes them, but because it is conceivable that Eskom could cause a banking crisis.

  • If Eskom was to default then Government would have to take all of its debt onto its own balance sheet and start paying interest on it. This could cause a spike in bond yields and a ratings downgrade which would raise borrowing costs across the economy.

For more detail; listen to the interview in the audio below.


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