EM CEEMEA CREDIT: ESKOM: NERSA tariffs to limit profitability and FCF generation
Eskom (Eskom; B2/Bpos/B)
NERSA tariffs to limit ESKOM’s profitability and FCF generation.
• ESKOM 8.45 Aug28 charting 1/8pt lower in cash post NERSA headline.
• We view NERSA’s tariff increases as negative for Eskom’s financial profile and believe this will limit the Co’s ability to improve its credit profile near term.
• NERSA will allow Eskom to increase tariff prices by 12.7% for 2025/26, 5.36% in 2026/17 and 6.19% in 2027/28 which are significantly lower than what the company requested at 36.15%, 11.8% and 9.1% respectively.
• Eskom’s requests were based on a return of assets of 4%, 5% and 6% over time, and still significantly below the Co’s cost of capital which is around 11%.
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US TSYS: Early SOFR/Treasury Option Roundup
Decent SOFR & Treasury option volumes on mixed trade this morning, underlying futures rising to near mid-December levels. Projected rate cuts into early 2025 look steady to slightly higher vs. late Monday levels (*) as follows: Jan'25 steady at -2.8bp, Mar'25 -14.6bp (-13.6bp), May'25 -21.3bp (-19.5bp), Jun'25 -30.8bp (-28.8bp).
- SOFR Options:
- 24,000 SFRU5 96.50/97.50 call spds vs. 12,000 SFRZ5 95.50 puts
- +2,500 SFRZ5 96.00/96.50/97.00 call flys, 8.25
- 2,400 SFRH5 95.75/96.00 call spds
- Treasury Options:
- +12,000 TYG5 110.5/111.5/112/112.75 broken call condors, 7 vs. 109-04/0.05%
- +5,000 wk2 US 112/112.5 put spds, 6 vs. 114-06
- 2,000 TYG5 108.5/110 put spds ref 109-01
- 1,100 TYH5 100/103/104 broken put trees ref 109-05
STIR: Repo Reference Rates
- Secured Overnight Financing Rate (SOFR): 4.37% (-0.09), volume: $2.290T
- Broad General Collateral Rate (BGCR): 4.35% (-0.10), volume: $844B
- Tri-Party General Collateral Rate (TGCR): 4.35% (-0.10), volume: $798B
- (rate, volume levels reflect prior session)
US: Republicans Outnumber Democrats For First Time In Decades
New analysis of survey data from Gallup shows that there are now more Republican and Republican-leaning voters in the electorate than Democrats, for the first time in decades.
- Patrick Ruffini at Echelon Insights notes: “Historically, this is practically unheard of. Democrats have held a longstanding advantage in party identification that dates back to the New Deal, with Republicans drawing even on only a couple of occasions — the 1994 Republican Revolution and the immediate post-9/11 period.”
- Ruffini continues: “We are now entering a period where the roughly even party ID split reflects the highly competitive nature of national elections. All things being equal we should expect a 50-50 political environment to yield tied party ID, rather than a 3- or 4-point Democratic ID edge. Good Democratic years will mean more Democratic identifiers in the electorate, and good Republican years will mean more Republican identifiers.”
Figure 1: US Adult Party Identification and Leaning in Presidential Election Years
Source: Gallup
