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Fitch puts Eskom on Rating Watch Negative

Nov 17 2017 21:30

Cape Town - Global ratings agency Fitch on Friday placed SA power utility Eskom on Rating Watch Negative (RWN). 

In a media release Fitch said it had placed Eskom’s long-term local currency issuer default ratings, or IDR, and its unguaranteed local currency senior unsecured ratings of 'BB+' on RWN. 

It also affirmed Eskom's government-guaranteed local currency senior unsecured debt ratings at 'BB+'. 

The ratings agency said it would be closely watching events at the power utility. “The most recent CEO rotation and their increasing frequency increase uncertainty about the continuity of [Eskom’s] recovery plan,” it said. 

“The programme has not yet provided confidence that the targets will be met despite our understanding that the milestones set by the committee had been achieved at end-September 2017, improving corporate governance. This is also affecting Eskom's funding and liquidity position.”

Fitch said it expected Minister of Public Enterprises Lynne Brown to appoint a permanent Eskom board before the end of November, 

“Eskom has an interim board of nine members rather than 15. Fitch expects the new board to appoint permanent management,” it said.  

“The company plans to improve its liquidity position and has started to defer some capex to reduce its short-term cash flow drain. However, failing improvement in liquidity and corporate governance and further support from the government we would be likely to reassess the strength of Eskom's links with the government and downgrade the IDR.”

Funding initiatives 

In response to the decision to put Eskom’s IDR on RWN, Calib Cassim, the power utility’s acting CFO said Eskom was confident its liquidity challenges would be resolved and that "funding initiatives planned until the end of the financial year will alleviate the pressure".

READ: EXCLUSIVE: Eskom’s cash dries up

Sean Maritz, Eskom’s interim Group Chief Executive said: “The support from the Minister to appoint the remaining board of directors will demonstrate commitment to enhance Eskom’s corporate governance structure. We remain focused on improving corporate governance to address liquidity challenges in the near term to avert a downgrade.”


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