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Eskom signs R20bn credit facility amid 'unfortunate' downgrade

Feb 28 2018 15:58
Jan Cronje

Cape Town - Eskom has described the timing of Tuesday's downgrade of its long-term debt by S&P Global Ratings as "unfortunate", as it announced that it has signed a R20bn short-term credit facility with a consortium of local and international banks.

"The government guaranteed facility will form part of the financing of Eskom’s current capital expenditure programme," the power utility said in a statement on Wednesday.

The credit facility was signed with seven lenders. Eskom did not say who they were. 

It would allow Eskom to recommence with its normal funding programme required to execute its current funding plan, it said. 

The signing of the short-term loan comes a day after S&P  downgraded Eskom's credit rating to 'CCC+' from 'B-', indicating that it remains at risk of a default in the next six months. 

In response, the power utility said the timing of the ratings downgrade is unfortunate as it is "starting to see slight improvements in market sentiments".

'Confidence in Eskom turnaround'

The cash-strapped power utility's interim group chief executive Phakamani Hadebe said the credit facility is a "demonstration of the financial markets’ confidence in Eskom’s turnaround strategy".

"We are cognisant of the challenges that are still ahead for the business and we are committed to ensuring that we expediently transition Eskom’s operational and financial profile to adequate standards," he said. 

In a separate reply to a request for comment on the S&P downgrade, Hadebe said Eskom is continuing to engage with stakeholders in an attempt to resolve its liquidity shortages and issues around corporate governance. 

"We have demonstrated visible actions that have been implemented to turn this company around," he said, adding that the power utility is "comfortable" that the South African state is giving it tangible support. 

Among the reasons for the downgrade S&P noted in its ratings announcement is that the 2018 Budget did not include a sufficiently extensive support framework for the power utility. 

“Although the South African government has taken measures to help Eskom, we think that government support to the utility over the past few months has been insufficient,” S&P said. 

Measures the government has taken this year to shore up Eskom include the appointment of a new board, pressure on the utility to fire executives tainted by corruption allegations, and assistance towards securing a R30bn short-term loan. 

Calib Cassim, Eskom's acting chief financial officer, said the utility will continue to engage with ratings agencies around the implementation and progress of its turnaround strategy. 

What does CCC+ mean?

According to S&P's ratings methodology, a CCC rating indicates debt that is "vulnerable to nonpayment".

"In the event of adverse business, financial, or economic conditions, the obligor [bond issuer] is not likely to have the capacity to meet its financial commitment on the obligation," states S&P. 

Rival ratings agency Moody's currently has Eskom's long-term debt at a 'B1' rating with a negative outlook. A 'B1' rating is the fourth rung of speculative grade debt. 

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