JOHANNESBURG, March 29 – Moody’s Investors Service on Wednesday, announced a decision to downgrade to B2 from B1 the long-term corporate family rating (CFR) of Eskom Holdings SOC Limited (Eskom) and the zero coupon eurobonds to B2 from B1 in line with the CFR.
“The rating action reflects the fact that, despite a number of improvements at the company in relation to its corporate governance and liquidity, there is limited visibility at this juncture as to Eskom’s plans for placing its longer term business and financial position on a sustainable footing,” Moody’s said.
“Additionally, the rating factors the lack of any tangible financial support for the company in the February State Budget, and the liquidity and funding challenges Eskom may continue to face. It follows the potential improvement of the South African government’s credit profile, as captured by Moody’s recent decision to confirm South Africa’s Baa3 government bond ratings and assign a stable outlook.”
Moody’s also downgraded to (P)B3/B3 from (P)B2/B2 the global medium term note (GMTN) programme and the senior unsecured GMTNs of Eskom.
It has also downgraded the probability of default rating (PDR) to B3-PD from B1-PD and the national scale rating (NSR) long-term corporate family rating to Ba2.za from Baa2.za.
“The outlook on all ratings is negative. This concludes the review that was initiated on 26 January 2018.”
Moody’s said it acknowledged action by the South African government in January in replace the Eskom board to address pressing corporate governance and trust issues.
It said that despite the appointment of a new board, the “conditions at the company nonetheless remain challenging”.
“Eskom’s challenges are complex and not easy to resolve. They include stagnant demand, potentially driving declining output from its coal-fired generation plants as renewables output increases and a large committed investment programme. The regulator, NERSA, have announced that they will consider Eskom’s ZAR66 billion application for under-recoveries and overspending relating to the three prior years, which would benefit the company,” Moody’s said.
“However, absent significant tariff increases, or reductions in costs and investment, Eskom’s large debt burden, amounting to ZAR367 billion as of 30 September 2017, could grow to potentially unsustainable levels and will, in any event, continue to weigh on its very weak financial metrics.”
Moody’s said it expected Eskom’s access to liquidity to have improved, given a new board with much greater experience and credibility and against a background of stronger, albeit still fragile, business confidence.