Fitch keeps SA's utilities outlook negative

Johannesburg – Ratings agency Fitch has kept the outlook for South African utilities negative, citing subdued economic growth and moderate electricity demand in 2017 as reasons.

Fitch released its new report on the outlook for both South African and Namibian utilities on Tuesday.

The ratings agency previously revised the country’s outlook from stable to negative, but kept the sovereign rating at investment grade at BBB-.

READ: FULL STATEMENT: Fitch revises SA's outlook to negative

“We estimate the companies’ credit metrics to have sufficient headroom to absorb financial and business risks in 2017,” Fitch stated. However, lower demand for water and energy coinciding with an inability to adjust capital expenditure and operating costs could affect standalone ratings, Fitch warned.

ALSO READ: Fitch drops outlook on Eskom to negative

Fin24 previously reported that Fitch revised Eskom’s outlook from stable to negative. Eskom’s issuer default rating (IDR) remained at BBB-.

The revision of Eskom’s outlook followed the decision by the ratings agency to downgrade the sovereign’s outlook from stable to negative.

Fitch added that the uncertainty around the Guarantee Framework Agreement (GFA) contributed to the negative outlook on the IDR and national long-term ratings.

“Uncertainty around the approval for the Guarantee Framework Agreement, court rulings on the regulatory clearing account and perceived corporate governance could introduce uncertainty to borrowing plans in our view and Eskom could face a funding crisis considering its capex plans,” stated Fitch.

Fitch noted that Eskom’s total guaranteed debt reduced to 32% of total outstanding debt at the end of the utility’s financial. This compared favourably to the 49% reported in the previous year and reflects Eskom’s ability to raise unguaranteed debt.