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A consortium of local and international banks today signed a R20 billion ($1.7 billion) short-term credit facility with South Africa’s power utility, Eskom.

The government-guaranteed facility will form part of the financing of Eskom’s current capital expenditure programme.

The terms of the facility are comparable to Eskom’s existing facility agreements and pricing is aligned to market benchmarks of similar structures.

Eskom’s Interim Group Chief Executive Phakamani Hadebe said: “We view the successful execution of this facility as a demonstration of the financial markets’ confidence in Eskom’s turn-around strategy. We are cognisant of the challenges that are still ahead for the business and we are committed to ensuring that we expediently transition Eskom’s operational and financial profile to adequate standards.” Read more...

Hadebe continued: “Eskom remains a critical enabler for South Africa’s economic growth and it is critical that we attain maximum operational efficiency for the business to avoid negatively impacting the macro-environment.”

Acting Chief Financial Officer Calib Cassim also commented: “Concluding this facility with the suite of banks reiterates the renewed willingness by financial markets to engage with Eskom. The funding provides Eskom with sufficient liquidity to allow the company time to continue resolving its governance related issues and enables Eskom to recommence with its normal funding program required to execute the FY2018/19 funding plan.”

On the subject of liquidity, Standard and Poor’s Global Ratings (S&P) today downgraded Eskom’s long-term foreign and local currency corporate credit rating to ‘CCC+’ from ‘B-’; adding that outlook remains negative.

Eskom’s credit rating

The review of Eskom’s credit rating is largely based on S&P’s assessment of the assumed likelihood of sufficient and timeous government support for Eskom from ‘very high’ to ‘high’; this, given the company’s current liquidity challenges.

“Eskom notes the decision by S&P to downgrade the credit rating as largely based on the strain on our liquidity levels. We have been and continue to be in extensive engagements with key stakeholders to resolve Eskom’s current governance related and liquidity issues.

“Further, we have demonstrated visible actions that have been implemented to turn this company around. We are comfortable that government has provided Eskom with tangible support to ensure that Eskom’s governance related and liquidity challenges are expediently resolved,” said Hadebe.

Cassim added: “The timing of the downgrade is unfortunate as we believe that we are starting to see slight improvements in markets sentiments.

"We will continue to engage with the rating agencies and various key stakeholders on the implementation and progress of the turnaround strategy with the ultimate goal of providing enough comfort to investors that we are on a path to stabilising Eskom’s operational and financial profile."