S&P lowered its long-term foreign and local currency corporate credit ratings on Eskom from 'BB-' to 'B+' following its decision last week to downgrade South Africa to sub-investment grade. “We believe that the downgrade of the sovereign signals a weakening of the government's ability to provide support to Eskom if needed,” S&P said.
It said, while Eskom had government backing, the predictability of such full and timely support in all circumstances was decreasing. S&P raised concerns about lower than expected tariff increases in the year ending March 31, 2019. It said the lower tariffs would affect the utility's liquidity.
Read also: S&P drops Eskom to 'highly speculative'
Moody’s also announced a decision to place Eskom’s Ba1 senior unsecured Medium Term Note (MTN) rating on review for downgrade. This followed its decision to place the Sovereign’s Baa2 bond rating on review for downgrade.
“We are confident we will successfully execute Eskom's funding plan over the next five years backed by the availability of the government guarantees. The only challenge that Eskom will have to contend with will be the higher cost of debt,” said Singh.