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Moody's again downgrades Eskom citing lack of clear financial plans

Mar 28 2018 22:09
Liezel Hill, Bloomberg, and Fin24

Johannesburg - Eskom Holdings on Wednesday had its credit rating downgraded by Moody’s Investors Service, which cited a lack of clarity regarding the South African power utility’s plans to stabilise its finances.

Eskom’s long-term corporate family rating was downgraded to B2 from B1.

B2 is the fifth rung of sub-investment grade debt. 

“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 in a statement.

The rating also accounts for “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.”

Moody's acknowledged in its ratings action that after Eskom's board was replaced in January, the power utility had obtained sufficient short term funding to address a looming liquidity crisis, and secure a 'going concern' sign off on its interim accounts. 

It also said that the replacement of the board had decreased the likelihood of imminent near term default.

But it said that conditions at the company "nonetheless remain challenging".

In January then Finance Minister Malusi Gigaba said that Eskom's financial position posed a risk to the the country's economy and fiscus

"This reflected the lack of tariff increases in the face of flat demand and the need for a reduction in operating costs and a change in the company's business model, potentially involving private sector participation," states Moody's.

"However, the budget did not provide for any tangible financial support, as the government has demonstrated on prior occasions when the company has been under stress."

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