South Africa – Standard and Poors Global Ratings (S&P) this week downgraded South Africa’s state owned power utility Eskom’s long-term foreign and local currency corporate credit rating to ‘CCC+’.
Citing Eskom’s current liquidity challenges S&P says the power utility is running the risk of a default within the coming six months. S&P also noted possible insufficient government support for Eskom as implied by the 2018 National Budget.
“Although the South African government has taken measures to help Eskom, we think that government support to the utility over the past few months has been insufficient,” it said.
This is the second time Eskom has been downgraded by the global rating agency despite the power company having received R30bn in short-term funding commitments from local and international funders at the beginning of this year. In November 2017 the power utility saw itself getting classed as ‘B-‘.
This latest S&P’s downgrade also follows a Fitch Ratings downgrade of the utility in January.
Fitch downgraded the power utility’s long-term local currency Issuer Default Rating (IDR) and unguaranteed local currency senior unsecured ratings to BB- from of BB+ and maintained the ratings on rating watch negative (RWN).
Fitch also noted Eskom’s liquidity challenges and the utility’s unclear capacity to meet its short-term financial obligations.
“Eskom notes the decision by S&P to downgrade Eskom’s long-term foreign and local currency corporate credit rating to ‘CCC+’ from ‘B-’; outlook remains negative,” said the utility while responding to the S&P downgrading.
The review of Eskom’s credit rating is largely based on S&P’s assessment of the assumed likelihood of sufficient and timeous government support for Eskom from ‘very high’ to ‘high’; this, given the company’s current liquidity challenges.
“Eskom notes the decision by S&P to downgrade the credit rating as largely based on the strain on our liquidity levels. We have been and continue to be in extensive engagements with key stakeholders to resolve Eskom’s current governance related and liquidity issues. Further, we have demonstrated visible actions that have been implemented to turn this company around. We are comfortable that government has provided Eskom with tangible support to ensure that Eskom’s governance related and liquidity challenges are expediently resolved,” said Phakamani Hadebe, Eskom Interim Group Chief Executive.
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