Investment bank Goldman Sachs said South Africa's rand could tumble 3.5% if State-run power utility Eskom suffers a major sell-off in its bonds, but it could also jump 4.5% if the firm's troubles improve.

Goldman's analysts said an Eskom risk gauge used by the bank was now close to its most elevated reading since it was started in 2013, suggesting that markets were currently pricing "close to peak Eskom risk".

While there was no precedent in South Africa, they said international experience with distressed quasi-sovereign entities suggested Eskom credit spreads to US debt could conceivably widen to more than 1000 basis points.

"In a negative one where Eskom risk rises further, the rand could weaken by 3.5% and (South African government debt) yields could widen by 45 basis points," Goldman's analysts said, adding that even more outsized reactions were also possible.

In contrast, in a positive scenario where Eskom stress dropped back to 2014 levels, modelling pointed to a 4.5% stronger rand and a 55 basis point improvement in ten-year government yields.

Eskom said back in December it wanted the government to take on R100-billion ($7.2-billion) of its debts. It has been implementing power cuts in recent months and is fighting for survival after a decade of financial decline.

The next Eskom-related developments to watch include: a report from a high-level taskforce at the end of January; the finance minister's budget speech in mid- to late February; and a tariff announcement from South Africa’s electricity tariff regulator, Nersa, due by March 1.

"With more acute financial and operational issues at the company and the taskforce report due at the end of the month, we think that policy decisions relating to Eskom could be more forthcoming now than they have been at times in the past."

"Nonetheless, given the current political constraints related to upcoming general elections (likely to take place in May 2019), any deeper-cutting and more comprehensive policies may only be possible post-elections," Goldman said.