On Friday Moody’s affirmed Eskom’s long-term foreign currency rating with a negative outlook as well as downgraded the company’s standalone credit quality by one notch.
According to Moody’s the affirmation of Eskom’s Baa3 rating with a negative outlook reflects that the state-owned group continues to be of critical strategic and economic importance to South Africa as the country’s dominant electric utility.
This view is reflected in the “high” level of government support factored in the rating under Moody’s rating methodology for government-related issuers. Moody’s also points out that Eskom’s Baa3 senior unsecured debt ratings relate to bonds and a note programme that are not supported by the government guarantee.
Brian Dames, Eskom Chief Executive acknowledged Moody’s affirmation and action, saying “We are comfortable with the measures we are taking, with the continued support of our shareholder, to move towards a more sustainable financial profile over the long-term.”
Caroline Henry, Eskom’s Acting Chief Financial Officer., said that Eskom had noted Moody’s affirmation of our credit rating. “Although the downgrade of our standalone credit quality is a challenge, we remain focused on developing a satisfactory response to National Energy Regulator of South Africa’s (Nersa) MYPD3 decision.”
The downgrade of Eskom’s standalone credit quality was attributed to:
– uncertainty over the evolution of Eskom’s investment programme and financial profile over the medium term,
– limited potential for improvement in the company’s weak financial metrics based on the Nersa’s multi-year price determination (MYPD3) decision, and
– the significant challenges facing Eskom in relation to the management of operating costs in the context of a stretched electricity system until new generation comes on stream.