South African State-owned Eskom and Transnet have also been downgraded by ratings agency Fitch to align with the recent downgrade of South Africa’s sovereign rating.

Eskom’s long-term local currency issuer default rating (IDR) and the senior unsecured local currency rating have been downgraded from BBB- to BB+, with a stable outlook, in line with the global rating agency’s methodology around parent and subsidiary rating linkage.

The ratings agency has also affirmed Eskom’s national long-term ratings at AAA, with its outlook revised from negative to stable, and its short-term rating at F1+.

“Fitch continues to assess the links between Eskom and the South African State as strong, with significant emphasis placed on the guarantee framework agreement, which leads to a rating alignment with the sovereign,” Fitch commented this week.

Fitch had downgraded South Africa’s long-term foreign and local currency IDR to BB+ from BBB- on April 7, following the move by Standard and Poor’s (S&P’s) Global Ratings earlier this month to downgrade the country to junk status.

“Given Eskom’s significant link and support from the South African government and the company’s high sensitivity to changes in the sovereign credit profile, Eskom’s downgrade reflects the downgrading of South Africa’s rating,” said Eskom CFO Anoj Singh in a statement on Wednesday.

“We also note Fitch’s revision of Eskom’s outlook to stable from negative and remain resolute in responsibly executing Eskom’s funding plan for the completion of the current build programme and ensuring continued security of supply for the country.”

The decision was in line with South Africa’s downgrade to junk status by S&P’s, which also downgraded Eskom, having noted that while Eskom would continue to receive extraordinary government support, the government's ability to provide support had weakened.

S&P’s lowered its long-term foreign and local currency corporate credit ratings on Eskom to B+ from BB- and its national scale long-term rating to zaBB- from zaBB+. The short-term national scale rating was affirmed at ZaB.

Meanwhile, South Africa’s downgrade had also resulted in the downgrade of State-owned freight company Transnet by both Fitch & S&P’s.

Fitch lowered its long-term foreign and local currency IDR and the foreign and local currency senior unsecured rating from BBB- to BB+, with a stable outlook, and the short-term foreign and local currency IDR down from F3 to B.

Fitch affirmed the national long-term rating and national senior unsecured rating at AA, with stable outlook, the national senior unsecured rating for notes guaranteed by South African government at AAA and the national short-term rating at F1.

“Transnet's ratings are constrained by the sovereign rating, as Fitch typically does not rate State-owned entities above the sovereign. Fitch assesses the links between Transnet and the sovereign as moderate to strong, which, until 2015, led to a one-notch uplift of Transnet's rating from the standalone level,” Fitch had said at the time of the ratings downgrades, which had also impacted South Africa-based telecommunications giants Telkom and MTN.

Earlier this month, S&P’s downgraded Transnet’s long-term foreign currency corporate credit rating from BBB- to BB+, in line with its assessment of the sovereign rating, and its long-term local currency rating to BBB- from BBB.

The outlooks are negative.

The agency also lowered the long-term South Africa national scale rating on Transnet to zaAA- from zaAAA, and affirmed the zaA-1 short-term national scale rating.

S&P’s, however, maintained Transnet’s standalone credit profile at bbb, which the parastatal said reflected its strong financial metrics and adequate liquidity.

OTHER RATINGS ACTIONS
S&P’s revised its outlook on Telkom to negative from stable, while affirming the BBB- long-term corporate credit rating on the company.

S&P’s also revised its outlook on MTN to negative from stable and affirmed its BB+ foreign and local currency long-term corporate credit ratings on the group.

Fitch had followed suit, downgrading MTN’s long-term foreign-currency IDR from BBB- to BB+, with a stable outlook, and affirmed the national long-term rating at AA, with the outlook revised from stable to negative.

MTN’s national short-term rating was affirmed at 'F1+(zaf) and the senior unsecured rating at AA(zaf).

“MTN's rating reflects the weakness of the macroeconomic and operating environments of MTN's main operating subsidiaries in South Africa and Nigeria. The FX mismatch between net debt and cash flow could lead to higher leverage if the US dollar strengthens. MTN's rating is constrained by the South African sovereign rating,” Fitch explained.

Fitch had also downgraded the long-term IDRs of five South African banks, namely Absa Bank, FirstRand Bank, Investec Bank, Nedbank and Standard Bank of South Africa, and four bank holding companies Barclays Africa Group, Investec, Nedbank Group and Standard Bank Group, from BBB- to BB+.

All entities' short-term IDRs have been downgraded to B from F3.

“At the same time, Fitch has downgraded the support rating of the government-owned Development Bank of Southern Africa to 3, from 2, while affirming its national long-term rating at AA+(zaf) with a stable outlook.”

“The outlooks on all banks' long-term IDRs are stable, in line with the outlooks on the sovereign's long-term IDRs,” Fitch commented.

S&P’s, meanwhile, had also lowered its ratings on financial institutions and two related holding companies.

“We lowered to BB+/B from BBB-/A-3 our long- and short-term counterparty credit ratings on FirstRand Bank, Nedbank and Investec Bank. In addition, we lowered our long-term counterparty credit rating on FirstRand to BB- from BB+, while affirming the B short-term counterparty credit rating. The outlooks are negative,” S7P’s noted.

The long-term South Africa national scale ratings on FirstRand, Nedbank, Investec and BNP Paribas Personal Finance South Africa have been lowered from zaAA- to zaA, with the short-term national scale ratings on the four entities affirmed at zaA-1.

“We have lowered to zaBB+/zaB from zaA/zaA-2 our long- and short-term national scale ratings on Barclays Africa Group and FirstRand, the nonoperating holding companies of their respective financial services groups.”

In addition, the ratings agency said it had downgraded the long-term national scale ratings on Barclays Africa Group subsidiary Absa Bank to zaA from zaAA-, while affirming the zaA-1 short-term national scale rating.