Eskom brushes off Moody’s bond rating downgrade
ESKOM yesterday moved to downplay the effect of ratings agency Moody’s Investors Service’s decision to downgrade its senior unsecured bond rating by one notch, from Baa2 to Baa3.
The power utility said the downgrade would have little effect on its multibillion-rand capital expansion programme which entails the construction of the Medupi and Kusile coal-fired power stations in Limpopo and Mpumalanga, respectively, and the Ingula pumped-storage scheme near Ladysmith in KwaZulu-Natal.
The programme is financed mainly through debt. The first unit of Medupi is due for commissioning next year.
In order to raise finance in local and global capital markets, Eskom needs a strong credit rating.
Spokeswoman Hilary Joffe said yesterday the utility had secured the majority of funding for the capital expansion programme. “We are still investment grade and have secured more than 80% of our funding to the end of Kusile, so would not expect much impact,” she said.
Moody’s had highlighted the need for regulatory certainty and for Eskom to be financially sustainable, Ms Joffe said.
Moody’s announced the state- owned utility’s downgrade on Monday, days after the agency unexpectedly downgraded SA’s sovereign credit rating. Moody’s said the move on Eskom was prompted by the weakening of the South African government’s credit profile. It directly affected Eskom, the agency said.
Moody’s alluded to regulatory uncertainty, which it said stemmed from the fact that key inputs into Eskom’s plan for the period between next year and 2017 were not expected to be settled until next year.
These include the level of tariff increases and final capital expenditure and operational expenditure levels for the third multiyear price determination, which will start in April next year.
Eskom is yet to submit to the National Energy Regulator of SA its application for the next round of electricity tariff adjustments for the next five years.
Cornelis van der Waal of research consultancy Frost & Sullivan yesterday said Eskom’s downgrade was expected as the state stands surety for a large part of Eskom’s debt.
We are still investment grade and have secured more than 80% of our funding to the end of Kusile
“So, in essence this is not a reflection on how Eskom is managed — rather a precautionary as a result of the perception of government’s ability to service their own debt.
“But this is bad news — as finance costs will increase and this will be passed on to consumers. At the same time it will also become more difficult to finance new projects — since investors are mostly looking at companies who can repay debt.”
Mr van der Waal said Eskom would, however, be able to finance all their projects under construction.
In its statement, Moody’s acknowledged that Eskom’s liquidity was strong, “as it has secured most of the loans necessary to complete the Medupi and Kusile projects”.