Fitch Ratings has announced its decision to affirm Eskom Long-Term Local Currency Issuer Default Rating (IDR) and unguaranteed local currency senior unsecured ratings of ‘BB-‘.
Fitch has simultaneously maintained the National Long-Term Rating at ‘A(zaf)’ and the National Short-Term Rating at ‘F1(zaf)’.
The rating agency has also affirmed the government-guaranteed local currency senior unsecured debt ratings at ‘BB+’, in line with the rating of South Africa (BB+/Stable Outlook).
The credit rating agency has also resolved to remove the Rating Watch Negative (RWN) instituted by Fitch in January 2018. Outlook on Eskom remains negative.
The decision to affirm the rating and remove the RWN on Eskom is a positive indication of the ratings agency’s view that Eskom has made significant progress towards improving the company’s liquidity health and resolving corporate governance challenges that plagued the company.
Eskom’s financial sustainability
At end September 2018, Eskom had successfully signed and secured approximately 72% of the FY18/19 R72 billion funding requirement from various sources of funding including both local and international financial markets. Read more: Eskom shares its transmission plan for 2019 to 2028
Eskom is fairly confident that it will successfully execute the remaining funding requirement through various sources including committed Development Finance Institutions (DFIs), local debt capital markets, Export Credit Agencies and other innovative funding structures.
Eskom’s Group chief executive, Phakamani Hadebe said: “the ratings action is an affirmation of extensive measures that have been implemented by the company’s leadership in transitioning Eskom from business as usual towards sustainability. This reflects the start in our journey towards restoring financial health, however the road ahead will be tough. Eskom remains a vital contributor to ensuring that South Africa’s economic growth targets are achieved and ensuring security of supply remains one of our key priorities”.
“This reflects the improvements in investor sentiment that has allowed Eskom access to the various sources of funding that bolstered our liquidity levels. We also have a sense of direction in terms of our tariff path owing to Nersa’s announcements on the RCA applications. Eskom’s operational and financial sustainability are very important focus areas and this ratings action gives us confidence that we are on the right path”, said Calib Cassim, acting chief financial officer at Eskom.