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Finance Minister Enoch Godongwana spurred a brief relief rally in the rand as he presented the country’s budget, unveiling news of anxiously awaited plans to deal with debt at the ailing state-run power utility.
The rand strengthened as much as 0.7% against the greenback, but was little changed shortly after Godongwana was done speaking. The yield on South Africa’s most liquid debt due 2026 did hold a decline, in a sign that investors are optimistic that the plan to transfer Eskom's debt to the state won’t have a dramatic effect on the government’s overall debt metrics.
South Africa plunged to an unprecedented level of power cuts just hours before Godongwana took to the podium to address lawmakers in Cape Town and outlined R254 billion of assistance for the stricken power company. The three-year program requires Eskom to partially privatise the country’s electricity transmission network and coal-fired plants and to take steps to improve its performance.
The proposals went some way toward appeasing investors, but would still have the effect of seeing government debt stabilize at higher levels, said Robert Hoodless, an FX strategist at InTouch Capital Markets in London. "The devil will be in the detail, and ultimately Eskom and wider South Africa must deliver on the promising words in the budget," he said.
The government will provide Eskom with three annual advances totaling 184 billion rand through March 2026 to repay maturing debt and cover interest costs. The funding will be converted to equity if Eskom meets its performance criteria. The bulk of the transfers will be financed through additional borrowing, the National Treasury said.
The state will also directly take over as much as R70 billion of Eskom’s loan portfolio in the 2026 fiscal year by converting the obligations to government debt that will be financed by issuing short- and long-term domestic loans.
The yield on Eskom’s unguaranteed tranche of dollar notes maturing in 2028 fell 52 basis points to 9.42%. The rand was 0.1% stronger by 3:26 p.m. local time.
In other market reaction, shares in South African food producers gained as Godongwana announced tax breaks for businesses that invest in renewable energy. A Johannesburg index of food manufacturers climbed 1.2%, after falling by the same amount before the budget speech.
