Eskom reacts to double ratings downgrade

Cape Town - State power utility Eskom on Wednesday said it was “positive” that its funding plan would succeed,  after its long term credit rating was downgraded by two international ratings agencies, in part due to questions over its cash reserves. 

Both S&P Global and Moody’s downgraded Eskom’s long-term credit ratings this week. 

READ: Moody's downgrades embattled Eskom

S&P lowered Eskom’s long-term foreign and local currency corporate credit rating to ‘B-’ from ‘B+’ on Tuesday, with a negative outlook.

A ‘B-' credit rating is the sixth notch of non-investment grade, according t S&P Global's credit rating system.  

Moody’s, meanwhile, announced on Wednesday that it had downgraded Eskom's long-term corporate family rating (CFR) to Ba3 from Ba2 and placed the state utility on review for a further downgrade.

A 'Ba2' rating is the third notch of speculative or non-investment grade, according to Moody's credit hierachy. 

The rating actions follow the announcement on November 24 that Moody’s has placed the South African sovereign’s rating on review for downgrade.

“While the rating decisions by both rating agencies are largely driven by the downgrade of the sovereign credit rating, the rating agencies also cited Eskom’s deteriorating liquidity levels and continued constraint access to funding as some of the drivers for the actions,” said the embattled power utility in a statement on Wednesday.

“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.”

Restoring sentiment 

Following the announcement by the two ratings agencies, Eskom’s acting CFO, Calib Cassim, said the power utility was “committed to ensuring an improvement of our liquidity levels and 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,” he said. 

In its rating announcement on Tuesday, S&P Global said that Eskom faced a touch operating environment caused by dwindling cash reserves. 

"In our view, the government's apparent unwillingness or inability to provide additional timely support to Eskom has left the company with very limited cash buffers to cover its operational costs and meet debt service, notwithstanding Eskom's partial ability to curtail capital expenditure (capex) over the next six months," read the ratings announcement.  

The power utility's interim group CEO Sean Maritz, meanwhile, said Eskom would continued to engage with stakeholders to ensure "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,” he said.