Moody’s upbeat about SA SOEs
COMMITMENT TO FIX GOVERNANCE But simply making new board appointments won’t be enough.
about Eskom’s “very weak credit profile” and its “extreme liquidity crisis.” Moody’s lowered Eskom’s credit rating to the fifth rung of junk status (B2) – significantly lower than SA’s investment grade rating of Baa3.
Eskom revealed it suffered a R2.3 billion net loss for the year ended March, and R20 billion in irregular expenditure dating as far back as 2012.
Moody’s believes government is likely to financially support the utility, given its past support through government guarantees. Eskom has debt levels of around R390 billion, of which about R218 billion is due in the next five years. Around R270 billion of the debt is guaranteed – meaning debt holders would turn to government if Eskom fails to service its debt.
As such, Moody’s expects a fiscal deficit (where government’s total expenditure exceeds its revenue generated) of about 4% of GDP in 2018/19 – higher than the 3.6% forecast by Treasury.
Although Eskom recently secured a R33-billion government-guaranteed loan from China Development Bank, it still needs to raise about R10 billion in capital expenditure to fund Kusile and Medupi coal-fired power stations’ construction.
New board appointments at Eskom aren’t enough to restore good governance, says Olga Constantatos of Futuregrowth Asset Management. Futuregrowth stopped lending to Eskom in 2016, over concerns about poor governance and financial mismanagement.
Constantatos says SOEs still need to improve their disclosure on the appointment of board members and senior executives, which are unilaterally made by Public Enterprises Minister Pravin Gordhan.
“We need to know who these individuals are. Are they appropriately qualified? Are they ethical? Have they been removed from a position of trust before? Are they conflicted?”