On Wednesday, rating agency Fitch Ratings, downgraded Eskom’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).
The rating agency also affirmed the government-guaranteed local currency senior unsecured debt ratings at ‘BB+’.
Fitch Ratings: downgrade motivation
In their statement, Fitch cites weakening liquidity of Eskom and the company’s uncertain capacity to fulfil its short-term financial commitments as the underpinning rationale for their decision.
Fitch Ratings said in a statement: “The downgrade reflects the weakening liquidity of Eskom and uncertainty about its ability to meet its financial obligations in the short term. The RWN reflects the potential for further downgrade in case of lack of government’s tangible support or improved liquidity.
“Eskom’s ratings, in particular, the guaranteed senior unsecured debt, are overall supported by a guarantee framework agreement. The recently appointed new board is taking active steps to improve Eskom’s liquidity position and we may affirm the IDR on improvements to corporate governance and liquidity or evidence of additional government support over the next three to six months.”
Governance to be restored
Eskom’s interim group chief executive Phakamani Hadebe said: “We take note of the decision by Fitch to downgrade Eskom’s credit rating. We firmly believe that the measures being implemented to turn the company around are yielding the favourable results.
“We have seen renewed enthusiasm from financial markets to support Eskom’s funding plan and the preliminary engagements with market participants have had positive outcomes.”
Hadebe added: “We are cognisant of the challenges that the company is dealing with and we are geared to effectively resolving these challenges and improve Eskom’s operational and financial sustainability in the interest of the South African economy.” Read more…
Acting chief financial officer Calib Cassim said: “The next few months will be difficult, but we need to work speedily and with a level of urgency in order to resolve our financial challenge.
“We are making progress in expediently resolving Eskom’s financial challenges; we will also continue engaging the rating agencies and the financial markets to address their concerns and improve investor sentiment and ultimately restore Eskom’s healthy liquidity position.”
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