On Friday, following the release of Moody’s credit ratings, South African state-owned power utility, Eskom, said that it notes with regret the rating action announced by Standard and Poor’s to lower the company’s long-term corporate credit rating to ‘BB’ from ‘BB+’, remains negative.
The parastatal said in a statement: “The rating agency cites the increased financial pressure faced by Eskom due to the uncertain tariff path resulting from the ongoing court case against NERSA; they also expressed concern over uncertainty around Government’s decision to extend the current R350 billion ($25 billion) Government Framework Agreement (GFA) availability period extension.”
As it currently stands, the GFA will expire on 31 March 2017.
Eskom Chief Financial Officer, Anoj Singh, said: “We are confident that the current process to extend the GFA availability period will be achieved to address the rating agency’s concern.
“It is clear from this ratings announcement that regulatory and tariff certainty is critical for Eskom’s financial sustainability; therefore the conclusion of the ongoing court case against NERSA is imperative for the determination of an appropriate tariff regime.”
He added: “Importantly, this 1- notch ratings downgrade will not have a material impact on Eskom’s funding plans for the financial year ending 31 March 2017. Eskom has secured funding of 86% for this period and this we believe will mitigate possible liquidity risks.”
Eskom earlier credit rating
In August, the Fitch Ratings agency had downgraded the utility’s Long-term local currency Issuer Default Rating (IDR) to ‘BBB’.
Given Eskom’s strong link and support from the South African government and its high sensitivity to changes in the sovereign credit profile, Eskom’s downgrade reflects the downgrading of South Africa’s rating.
At the time, the utility said that it’s National long-term and short-term ratings remain unchanged.
Singh commented at the time: “We note the decision by Fitch to downgrade Eskom on the back of the Sovereign downgrade; in the interests of the economy we will continue to focus on stabilising the security of supply without compromising Eskom’s financial sustainability.”