The rand rose to the strongest level since February after Eskom's biggest bondholder was said to have a rescue plan for the state-owned company.
The currency, which was already being buoyed by a global rally, added as much as 0.9%, bringing the dollar-rand pair close to crossing below its 200-week moving average. The nation's 2026 bonds rallied, putting the yield on course to closing below 8% for the first time in more than a year.
The Public Investment wants to convert its R90n holding into equity in return for a say over Eskom's management, including board representation, said five people with direct knowledge of the talks.
"A debt-equity swap means that a creditor becomes a shareholder, and if the amount of debt swapped is large enough, even potentially a controlling shareholder. In my lingo, that is tantamount to privatisation, albeit in stealth mode," said Cristian Maggio, the head of emerging-market strategy at TD Securities in London.
"Personally, I don't think it's going to happen unless the government accepts that privatization is needed. It would be a very welcome development, but it ain't gonna happen."
Eskom gets rescue option as PIC proposes debt-equity swap
A plan for the struggling utility would be a relief for government bonds and the rand, which have been weighed down by concerns over the impact of bailouts on the nation's finances. The potential proposal coincides with a rally in emerging markets, which advanced on bets the US will cut borrowing costs this month for the first time in more than 10 years.
The rand added 0.9% as of 14:29 in Johannesburg to 13.8650 per dollar. The main stock gauge was little changed.
Eskom, which supplies about 95% of the electricity used in Africa's most industrialised economy and has been labelled "too big to fail" by President Cyril Ramaphosa, has more than R440bn of debt, and doesn't generate enough cash to service it. The National Treasury is finalizing a bailout plan over and above the R68bn pledged in the February budget.