Moody’s downgrades Eskom

Brian Dames,
CEO, Eskom
5 October 2012 – On the 1st of October 2012 Moody’s Investors Service downgraded its rating of Eskom’s bonds by one notch following the ratings agency’s revision of the South African sovereign bond rating on 27 September 2012. Eskom’s senior unsecured bond rating has been reduced to Baa3 on the Moody’s scale, from Baa2, and the outlook on the rating remains negative.

In terms of Moody’s rating methodology for government related issuers, Eskom’s senior unsecured bond rating incorporates an uplift based on Moody’s assumption of a high level of potential government support in case of need. In its rationale for the downgrade, Moody’s states that the weakening of the South African government’s credit profile directly affects the rating of Eskom.

Eskom has also noted comments by Standard & Poors, which on the 3rd of October 2012 issued an update on Eskom but affirmed its rating, which stands at BBB+ on the Standard & Poors scale. The agency has maintained its negative outlook on Eskom.

"We have taken note of the rating agencies’ analysis of the challenges facing Eskom. Their comments highlight the electricity industry’s need for regulatory and policy certainty, as well as the need for Eskom to be financially sustainable," Eskom CEO Brian Dames says.

Eskom is in the middle of a R340billion new build programme to provide electricity infrastructure which is urgently needed to support South Africa’s economic growth and development. It has a funding programme in place for the new build programme, with government support, and already has more than R180billion of debt on its balance sheet, from local and international financial markets. This will almost double over the next six years as the new build programme is completed. Credit ratings by Moody’s and Standard & Poors influence the cost and availability of Eskom’s debt.