South Africa Pressured To Raise $28B For Airline, Power Firm

South Africa Pressured To Raise $28B For Airline, Power Firm

From Bloomberg

Pressure is building on South Africa to find $28 billion to plug funding gaps in the state-owned airline and power utility, threatening efforts to cut the budget deficit as it risks weighing on the nation’s ratings.

South African Airways SOC Ltd. and Eskom Holdings SOC Ltd. need about 300 billion rand of support, the bulk of which will come from the National Treasury through capital injections, interest-free loans or bond sales, the Department of Public Enterprises said on Aug. 7. Such sums are challenging Finance Minister Nhlanhla Nene, who is struggling to boost tax revenue from an economy facing a recession as he seeks to keep the budget deficit at 4 percent of gross domestic product this year.

“If the government uses its balance sheet to bail out these entities and provide funding, it puts its own rating in question,” Adenaan Hardien, chief economist at Cadiz Asset Management, said by phone from Cape Town Aug. 7. “It was never the plan to fund Eskom and SAA from government coffers, but here we are. There is little room for maneuver.” Cadiz manages about $2.8 billion worth of assets, including Eskom bonds.

The additional cash call is threatening South Africa’s ratings after a strike by platinum miners that caused the economy to shrink 0.6 percent in the first quarter was followed by a four-week walkout by 220,000 metalworkers.

Read more at Bloomberg