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Johannesburg - Eskom and Transnet are likely to see strong demand for planned eurobonds over the next few months, as investor appetite for emerging market debt is likely to outweigh management problems at the state-owned firms.
Eskom, the country's power utility, has said it needs to raise R45bn to R50bn over the next three years in the international markets.
Transnet, South Africa's logistics group, plans to launch a $1bn bond to help fund infrastructure investment.
Eskom accompanied South Africa's Treasury on an investor roadshow in April and is expected to go to market before the end of this year.
The timing could not be better: investors are eating up emerging market debt that has yielded double-digit returns this year.
"Generally speaking right now the markets are very receptive and accommodative to new issue supply. We are seeing high degree of appetite for high quality emerging market paper and that certainly extends to the corporate sector," said Michael Gomez, portfolio manager and co-head of emerging markets at PIMCO.
Eskom's foreign currency rating is at BAA2 by Moody's and BBB+ by Standard & Poor's.
"On the longer term side, we see a sanguine outlook for emerging market economies and issuers both on the sovereign side and the corporate side," Gomez said in a telephone interview from Munich.
After Dubai's debt crisis last year, investors are looking for companies with strong sovereign backing.
Eskom expects to get R150bn more in state support, above the R175.97bn in guarantees it has already secured. Further support could be announced by the Treasury in its medium-term budget statement on October 27.
While analysts would not be pinned on pricing, one US-based investor said yields would likely "not be that exciting."
"I would look at other utilities across emerging markets. That would be a more important indicator for pricing," the investor said, adding he would take up Eskom and Transnet bonds.
Brazil's state-owned oil company Petrobras, whose ratings are similar to Eskom, issued a $2.5bn 10-year bond last year at a yield of 5.875%.
Eskom last tapped the global market in 2006 with a 7-year R500m eurobond, at a yield of 4.051% and the yield could be lower than that in the current market.
Leadership problems at these companies will likely not bother investors.
Eskom appointed Brian Dames as chief executive in June, after months of a leadership vacuum created by the exit of Jacob Maroga and board chairman Bobby Godsell in November in a power struggle that involved labour unions and factions of the ruling ANC.
Transnet has yet to appoint a permanent replacement for Maria Ramos who departed in February 2009, but acting CEO Chris Wells is highly regarded in the industry.
"Foreigners are dying for South African parastatal debt," said Michael Kafe, analyst at Morgan Stanley, adding he fielded a lot of questions on state-owned companies on a roadshow to Europe in September.
"I think this is the best time to do it. They need to take advantage and issue as much as they can before the present window closes," he added.
