Moody’s downgrades Eskom and gives it a negative outlook
ESKOM felt the brunt of the lowering of the country’s credit rating by Moody’s Investors Service when the rating agency downgraded the state-owned utility and gave it a negative outlook.
Moody’s downgraded the power utility’s long-term corporate family rating (CFR) to Ba2 from Ba1 and the zero coupon eurobonds to Ba2 from Ba1 in line with the CFR. It said this action on Eskom reflected the weakening of South Africa’s sovereign rating’s credit profile following the downgrade of the country’s government bond ratings to Baa3 from Baa2, negative outlook.
The ratings agency said given Eskom’s weak standalone credit quality, its ratings relied on the support that Moody’s considered would be provided by the government of South Africa. “The negative outlook reflects the negative outlook on the government of South Africa,” Moody’s said.
Eskom’s chief financial officer, Anoj Singh, said: “We note the Moody’s rating action as primarily driven by the downgrade of the sovereign credit rating.” Being downgraded is known to impact the ability to borrow money as investors see it as a riskier bet and demand higher returns.
“Eskom has secured 53 percent of this fiscal year’s funding requirement and we remain resolute that we will fully execute the required funding for the year, albeit under challenging market conditions,” Singh said.
Could stabilise According to Moody’s the outlook on the ratings could stabilise if: the ratings outlook was changed to stable; Moody’s assessment of high government support for the company remained unchanged, and the company’s operational and liquidity profile were to continue to stabilise.
“Our liquidity levels remain healthy and Eskom’s financial profile continues to improve and stabilise. Backed by the availability of the government guarantees and the stable financial profile we do not foresee significant impediments in the execution of the remainder of the 2017/18 financial year funding requirement,” said Singh.