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Eskom bonds rated stable by Moody’s

Eskom receives improved
rating from Moody’s
Johannesburg, South Africa — ESI-AFRICA.COM — 28 January 2011 – Moody’s Investors’ Service has assigned a definitive Baa2, long-term, senior unsecured rating to the US$1.75 billion, 5.75%, senior unsecured notes of South African national power utility Eskom Holdings Limited, due in 2021. The rating outlook is stable.

“The Baa2 rating reflects the strategic importance of Eskom to South Africa (rated A3) as its dominant, vertically-integrated utility, but at the same time it incorporates the execution risks related to a large and prolonged programme of capital investment needed to build essential electricity infrastructure,” says Moody’s vice-president-senior credit officer and lead analyst for Eskom Helen Francis.

Eskom has suffered from a weakened financial profile in recent years, although results for the first half of the current financial year represented an improvement over those for the first six months of the 2010 financial year. Additionally a number of measures were taken by the government in 2010 to strengthen the company and enable it to continue its investment programme.

As a result Moody’s factors into Eskom’s rating a high level of potential support from the government in the event of extraordinary need, resulting in a significant uplift to Baa2.

Although the rating outlook is stable, positive pressure could be exerted on the rating over the medium term if Eskom’s financial profile were to continue to improve on a substantial basis.
But the impact on the rating would need to be assessed in the context of Moody’s view of the level of government support at that time.