Eskom notes credit rating downgrades

Wednesday, November 29, 2017

Eskom on Wednesday noted Moody’s Investor Service and Standard & Poor’s (S&P) decision to cut the utility’s credit rating.

S&P lowered Eskom’s long-term foreign and local currency corporate credit rating to ‘B-’ from ‘B+’, with a negative outlook. S&P has simultaneously revised Eskom stand-alone credit profile (SACP) to ‘ccc-' from ‘ccc+’.

At the same time Moody’s downgraded to ‘Ba3’ from ‘Ba2’ the long-term corporate family rating (CFR) of Eskom.

In addition, the zero coupon eurobonds rating has similarly been revised to ‘Ba3 from ‘Ba2’ in line with the CFR and the global medium term note (GMTN) programme. The senior unsecured GMTNs of Eskom has been downgraded to ‘(P) B1/B1’ from ‘(P) Ba3/Ba3’. All of Moody’s ratings remain under review for further downgrades.

The rating decisions by the two agencies are largely driven by the downgrade of the sovereign credit rating last week. The rating agencies also cited Eskom’s deteriorating liquidity levels and continued constraint access to funding as some of the drivers for the actions.

S&P and Moody’s have also highlighted their assessment of the assumed likelihood of timeous government support for Eskom from ‘extremely high’ to ‘very high’ and from ‘high to strong’, respectively.

Interim Group Chief Executive Sean Maritz said Eskom continued to engage with the relevant key stakeholders to ensure that current governance-related issues are expeditiously resolved.

“We believe that the resolution of the governance-related issues will move Eskom towards improved financial sustainability and ensure security of power supply to continue aiding the country’s economic growth path,” said Maritz.

Meanwhile, the power utility’s acting Chief Financial Officer Calib Cassim said Eskom was committed to ensuring an improvement in its liquidity levels. Eskom, he said, is committed to restoring the positive lender and investor sentiment to unlock access to the markets.

“We remain positive that with the co-operation of the relevant participants, the funding plan can still be executed, albeit under challenging conditions. This will strengthen our liquidity and propel us towards positive cash flows,” said Cassim.

Last week, the power utility said it noted that Fitch Ratings has placed it on a rating watch negative and is working to avert a downgrade.

“Fitch Ratings has placed Eskom’s long-term local currency Issuer Default Rating (IDR) and unguaranteed local currency senior unsecured ratings of ‘BB+’ on Rating Watch Negative (RWN),” said Eskom at the time. -

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