![[South Africa] Fitch and Moody’s downgrade Eskom’s credit rating on weakening liquidity](eskom SA.jpg)
[South Africa] Fitch and Moody’s downgrade Eskom’s credit rating on weakening liquidity
Credit rating agencies Moody's and Fitch Ratings have downgraded the credit rating of South African electricity public utility Eskom citing the company's uncertain capacity to fulfill its short term financial obligations.
Moody’s has downgraded the company's rating to ‘B1 from Ba3’; the zero coupon eurobonds rating has similarly been revised to ‘B1’ from ‘Ba3’ in line with the CFR and the global medium term note (GMTN) programme and the senior unsecured GMTNs of Eskom have been downgraded to ‘(P)B2/B2 from (P)B1/B1’. All Moody’s ratings remain under review for further downgrades.
While the rating agency views the recent interventions, including the appointment of the Board by Deputy President Ramaphosa as favourable actions in bolstering the credit quality of Eskom; Moody’s cited Eskom’s deteriorating liquidity and the ability of Government to provide direct equity support to Eskom.
On the other hand Fitch Ratings has downgraded Eskom’s long-term local currency Issuer Default Rating (IDR) and unguaranteed local currency senior unsecured ratings to ‘BB-‘ from of ‘BB+’ and maintained the ratings on Rating Watch Negative (RWN). The rating agency also affirmed the government-guaranteed local currency senior unsecured debt ratings at ‘BB+’.
In their statement, Fitch cites weakening liquidity of Eskom and the company’s uncertain capacity to fulfil its short-term financial commitments as the underpinning rationale for their decision.
Eskom’s Interim Group Chief Executive Phakamani Hadebe said, “We take note of the decision by Fitch to downgrade Eskom’s credit rating. We firmly believe that the measures being implemented to turn the company around are yielding the favourable results. We have seen renewed enthusiasm from financial markets to support Eskom’s funding plan and the preliminary engagements with market participants have had positive outcomes. We are cognisant of the challenges that the company is dealing with and we are geared to effectively resolving these challenges and improve Eskom’s operational and financial sustainability in the interest of the South African economy.”
Commenting on Moody’s decision, Eskom’s Acting Chief Financial Officer, Calib Cassim said, “We remain cautiously enthusiastic that we are geared towards improving the company’s liquidity position and financial profile. We are acutely aware of the challenges that Eskom is confronted with; however, we are confident that we are on the verge of restoring a positive market sentiment that will assist with the execution of our funding plan’.
