Eskom rating faces possible cut to junk

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Cape Town - Eskom, which provides about 95 percent of South Africa’s power, expects Standard & Poor’s to await a government plan to address the utility’s funding shortfall before deciding whether to cut its credit rating to junk.

“We are in touch with S&P on a very regular basis,” Eskom finance director Tsholofelo Molefe said in Cape Town today, following a briefing to lawmakers.

“They are going to sit as a committee in October to discuss Eskom. We believe we still have around until the end of the month” to come up with an appropriate funding model and avoid a downgrade, she said.

Eskom has a 225 billion-rand funding shortfall over the five years through March 2018.

S&P rates its debt as BBB-, the lowest investment grade.

On June 20, the ratings company placed Eskom on negative CreditWatch, meaning it had a 50 percent chance of being lowered again within 90 days.

A downgrade to junk would significantly raise borrowing costs for Eskom, the country’s biggest seller of corporate bonds, with about 255 billion rand of debt outstanding at March 31.

The government is considering injecting capital and providing convertible loans to the state-owned utility, Public Enterprises Minister Lynne Brown told reporters in Johannesburg on August 7.

“The minister of public enterprises is working with the other ministries for a solution,” Molefe said.

“We are quite confident they will be able to table a plan before cabinet before the end of September.”

South Africa’s energy regulator in July found the utility’s costs exceeded projections for the three years through March 2013, which will allow the company to raise tariffs by more than the average 8 percent agreed next year.

Annual inflation was 6.3 percent in July.

Eskom isn’t currently considering applying for further prices increases, Molefe told lawmakers. - Bloomberg News

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