S&P’s affirms Eskom’s BBB- rating following bailout

11th November 2014

By: Terence Creamer

Creamer Media Editor

  

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Ratings agency Standard & Poor's (S&P’s) affirmed its 'BBB-' long-term foreign and local currency ratings on South African electricity utility Eskom on Tuesday. S&P’s also removed the State-owned company from CreditWatch, but said it had applied a negative outlook to Eskom.

S&P’s indicated that the affirmation of what was a low investment-grade rating took account of government's financial support package, which was announced by Finance Minister Nhlanhla Nene on October 22.

Nene confirmed a further direct allocation to power utility Eskom of at least R20-billion, which would be raised through the sale of “non-strategic State assets”.

The plan also envisaged Eskom raising additional debt of about R50-billion, over and above its original plan of R200-billion in debt, and support for the utility in applications to the National Energy Regulator of South Africa for tariff adjustments “in line with the regulatory process”.

The package, S&P’s said, should stabilise the utility’s liquidity and credit metrics over the near term and was also suggestive of an "extremely high” likelihood of further government support for Eskom should such support be required in future.

The action followed a day after Moody's Investors Service downgraded its senior unsecured rating on Eskom, following its revision of the South African sovereign debt rating on November 6.

Moody’s lowered Eskom’s senior unsecured rating to a speculative grade of Ba1 from Baa3, but it changed its outlook to stable from negative.

S&P’s said its negative outlook reflected potential execution risks with the support plan and that “additional actions may need to be taken until Eskom’s underlying operating performance stabilises”.

Eskom Finance Director Tsholofelo Molefe said the affirmation of Eskom’s credit rating and the removal of the CreditWatch was a "very constructive action by the agency".

“Eskom remains confident that the support from government will stabilise the credit metrics and the liquidity position. We will continue to implement the initiatives identified with the support package from government to improve the financial profile of Eskom and move towards a more stable credit rating environment,” she added.

Edited by Creamer Media Reporter

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