Eskom speaks on Fitch downgrade

Thursday, February 1, 2018

Measures taken to turn the fortunes of Eskom around will yield positive results despite a rating downgrade by Fitch Ratings.

The rating agency downgraded the power utility’s long-term local currency Issuer Default Rating (IDR) and unguaranteed local currency senior unsecured ratings to BB- from of BB+ and maintained the ratings on rating watch negative (RWN).

“We take note of the decision by Fitch to downgrade Eskom’s credit rating. We firmly believe that the measures being implemented to turn the company around are yielding the favourable results.

“We have seen renewed enthusiasm from financial markets to support Eskom’s funding plan and the preliminary engagements with market participants have had positive outcomes,” said interim Group Chief Executive Phakamani Hadebe on Wednesday.

Hadebe said the utility is cognisant of it's challenges, adding that management is geared to effectively resolving them.

“We are geared to effectively resolving these challenges and improve Eskom’s operational and financial sustainability in the interest of the South African economy,” said Hadebe.

In their statement, Fitch cites weakening liquidity of Eskom and the company’s uncertain capacity to fulfil its short-term financial commitments as the underpinning rationale for their decision.

The utility’s acting Chief Financial Officer Calib Cassim said there is a need to work speedily to resolve its financial challenges.

“The next few months will be difficult, but we need to work speedily and with a level of urgency in order to resolve our financial challenge. We are making progress in expediently resolving Eskom’s financial challenges; we will also continue engaging the rating agencies and the financial markets to address their concerns and improve investor sentiment and ultimately restore Eskom’s healthy liquidity position,” said Cassim.

On Tuesday, Hadebe presented the utility’s interim results at a media briefing in Johannesburg. The utility’s net profit after tax dropped from R10 billion to R6 billion.

The utility reported earnings before interest, tax, depreciation and amortization (EBITDA) of R30 billion (Sept 2016: R32 billion), due to the 2.2% tariff. Eskom’s net profit after tax came to R6 billion (Sept 2016: R10 billion), with higher depreciation and net finance cost due to new build units coming online.

Earlier this month, Moody’s downgraded the utility to B1 from Ba3.

The state-owned entity’s zero coupon eurobonds rating was similarly revised to B1 from Ba3, in line with the corporate family rating (CFR) and the global medium-term note (GMTN) programme. The senior unsecured GMTNs of Eskom have been downgraded to (P)B2/B2 from (P)B1/B1. -

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