S&P affirms Eskom rating at BB-

Ratings agency S&P Global Ratings yesterday affirmed its credit rating of Eskom at BB-, citing the government's extension of the utility's R350bn debt guarantee by a further six years. The agency left Eskom's outlook on negative.

Ratings agency Standard & Poor’s (S&P) has affirmed its credit rating of Eskom at BB-, citing the government’s extension of the utility’s R350bn debt guarantee by six years.

The agency retained Eskom’s negative outlook.

This comes days after the electricity producer said it had ramped the first unit of the Kusile power station to full production of 800MW, putting it on course for commercial production. This would expand Eskom’s installed capacity.

The BB- rating is the first notch in the agency’s speculative grading, or junk status, meaning the utility is “less vulnerable in the near term, but faces major ongoing uncertainties to adverse business, financial and economic conditions”, says S&P. Junk status means a company’s borrowing ability is reduced, with its debt becoming riskier and more expensive.

Eskom relies on debt to fund its capital expenditure programme. Even with the government’s support, its credit rating has deteriorated over the past seven years.

The company’s lack of adequate generating capacity in the years to mid-2015 worsened the situation in the eyes of bondholders and ratings agencies.

It has had to rely heavily on government support for funding, together with sharply increasing electricity prices, which hurt the economy by raising the cost of doing business.

In February, the Treasury announced it had extended the government’s R350bn guarantee of Eskom’s debt by six years to March 2023. This is the government’s largest debt exposure in its companies, comprising almost a quarter of its R2-trillion debt pile.

The electricity producer had used up R187bn of its facility by December 2016 in the construction of three power stations, which together will add another 10,932MW to its capacity when completed by 2023.

Meanwhile, Eskom said it had yet again changed the composition of its executive committee. Abram Masango, for the past two years head of its capital expansion programme, has been moved to work in the office of the CEO.

He will assist acting CEO Matshela Koko and finance chief Anoj Singh “with the execution of its corporate plan”, said the utility.