NATIONAL BUSINESS NEWS - Eskom’s stand-alone credit profile was downgraded one-notch at Fitch Ratings, signalling the South African power utility’s worsening ability to repay debt without additional government support.
Weakening revenue growth, profit-margin compression because of lower tariff increases, and higher primary energy costs were cited by Fitch as among the reasons for the reduction. Eskom’s poor liquidity and high debt levels are the worst among its peers, which includes Namibia Power, Fitch said in a statement on Monday.
Fitch assessed the government’s support for Eskom as inconsistent, and said this has led to an unsustainable financial profile over an extended period of time. While the government plans to inject R230 billion into the company over the next 10 years, this would only cover half of its debt-servicing costs, Fitch said. It does, however, give the company some flexibility over the next 12-18 months to execute its turn-around plan.
There are also risks to implementing reforms at the company, Fitch said, adding these are often difficult, and “generally associated with convoluted social and political pressures.”
Eskom, seen as the biggest threat to South Africa’s economy with at least R450 billion in debt, is due to get a new chief executive officer by the end of October. The government is also set to release a plan to save the business.
The stand-alone rating was cut to ccc- from ccc, while Fitch affirmed Eskom’s long-term local-currency issuer default rating at BB-, with a negative outlook.
Moody’s Investors Service rates Eskom’s long-term debt at B2, five notches below investment grade. Moody’s is the only one of the three largest ratings companies to have held South Africa’s sovereign debt at investment grade.
“We continue to engage with our shareholder ministries on feasible options to transition Eskom to financial sustainability,” acting Chief Executive Officer Jabu Mabuza said in a statement.
“We are grateful for the support that we’ve received from the shareholder ministries and all key stakeholders including our employees in our endeavor to steer this company towards the desired financial and operational sustainability.”