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Johannesburg - Moody's on Monday downgraded ratings for South African power utility Eskom as the company battles higher costs and tries to meet huge capital expenditure needs.
Eskom is to spend billions of rand to boost power capacity with demand outstripping supply, leading to costly blackouts.
Consumers have been asked to cut back on usage to avoid
overloading the grid, while higher coal prices have put pressure on Eskom's finances.
Moody's said it had lowered Eskom's local currency rating to
Baa2 from A1 and cut the foreign currency rating to Baa2 from
A2. The outlook for all ratings was negative. The baseline
credit assessment (BCA) increased to 13 from 8.
The four notch local currency downgrade was blamed on a
deterioration of Eskom's stand-alone credit profile due to an
aggressive capital investment programme and the negative
financial impact on Eskom of tariff increases that were not as
high as it had requested.
"Moody's expects Eskom's external borrowings to rise
substantially over the next 5 years," Craig Jamieson, Moody's
lead analyst for the company, said.
"Credit metrics are expected to be very weak in the next few
years, with financial ratios that, in isolation, would position
Eskom in the speculative grade rating category for a utility
with a high business risk profile".
The downgrade may hamper efforts to finance billions of
rands from capital markets to help fund the expansion,
although the new ratings remain investment-grade.
South Africa's energy regulator in June agreed an average
27.5 percent electricity price increase for 2008/09, about half
of what Eskom had asked for.
The National Treasury, however, has budgeted R60bn over the next three years to help Eskom pay for the R343bn rand, 5-year expansion programme.
Moody's said strong government support had supported the
rating.
Eskom's grid almost collapsed in January when it could not
meet demand and it shut down supply to some of the world's
biggest platinum and gold mines, boosting metals prices.
Mines are still not back to full power.
Eskom said it noted the downgrade, but was disappointed that
recent progress to ensure long term financial sustainability
"was not adequate to satisfy Moody's".
"Although we're deeply disappointed with the downgrade,
Eskom retains its investment grade rating and will have
continued access to local and global capital markets," says Mr
Jacob Maroga, chief executive of Eskom.
Eskom supplies about 95% of South Africa's
electricity.
- Reuters