Eskom’s funding worries worsen
ESKOM’s funding woes deepened last week after ratings agency Moody’s Investors Service downgraded the power utility’s long-term corporate family rating (CFR) to B2 from B1 and the zero coupon eurobonds to B2 from B1 in line with the CFR.
Moody’s said that despite a number of improvements at the company in relation to its corporate governance and liquidity, there was lack of clarity about Eskom’s plans to place its longer-term business and financial position on a sustainable footing.
“Additionally, the rating factors 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. It follows the potential improvement of the South African government’s credit profile, as captured by the recent Moody’s decision to confirm South Africa’s Baa3 government bond ratings and assign a stable outlook.”
Moody’s also downgraded to (P)B3/B3 from (P)B2/B2 the global medium-term note (GMTN) programme and the senior unsecured GMTNs of Eskom.
Moody’s acknowledged action by the South African government in January in replacing the Eskom board to address pressing corporate governance and trust issues. The government appointed a new board and an interim chief executive, Phakamani Hadebe, in December.
But the ratings agency said that despite the appointment of a new board, the “conditions at the company nonetheless remain challenging”.
“Eskom’s challenges are not easy to resolve. They include stagnant demand, potentially driving declining output from its coal-fired generation plants as renewables output increases and a large committed investment programme.
“The regulator, (National Energy Regulator of South Africa), has announced that it would consider Eskom’s R66 billion application for under-recoveries and overspending relating to the three prior years, which would benefit the company,” Moody’s said.
Eskom said on Friday that the new board was formulating a comprehensive long-term strategy and plan that would place Eskom’s business on a firmer footing. The utility said it was confident the strategy would yield positive results.
Eskom interim chief executive Phakamani Hadebe said: “While we are disappointed with Moody’s decision at this stage, the future looks promising. We have addressed the liquidity issue and other key challenges. The new board and Eskom leadership are swiftly moving into the second intervention stage by formulating an integrated strategy that will yield favourable results.
“The positive sentiments expressed by Moody’s encourage us to work even harder to ensure the execution of this strategy. I am confident that we will stabilise the credit profile of Eskom and improve its credit rating.”