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‘Eskom's financial profile to improve’

Published Jul 11, 2011


Power utility Eskom's ratings have been affirmed by ratings agency Fitch Ratings, which believes Eskom's financial profile will continue to improve over the coming years.

Fitch on Monday affirmed Eskom Holdings' long-term local currency Issuer Default Rating (IDR) at “A”, its long-term national rating at “AAA(zaf)” and short-term national rating at “F1+(zaf)”. The outlook on both long-term ratings is “stable”.

The stable outlook reflects Fitch's continuing alignment of Eskom's ratings with those of its 100% shareholder, the South African government with its long-term local currency IDR at “A” and foreign currency IDR at “BBB+”, both with a stable outlook.

Fitch said it considered the increased levels of explicit and implicit government support in 2011, in line with the agency's expectations, and noted that SA's electricity tariffs were expected to continue tracking towards cost reflectivity over the next four years.

“Fitch believes that Eskom's financial profile will continue to improve over the coming years, boosted by higher tariffs and ongoing operational cost reductions. In addition, greater transparency from regulators and the government should support the normalisation of the standalone profile at levels commensurate with an international investment-grade rating over the medium term,” said Roelof Steenekamp, director in Fitch's industrials team.

“Eskom's ratings are strongly supported by both tangible and intangible government support, which reflects Eskom's strategic importance to both the country's energy needs and the broader South African economy,” Steenekamp said.

Fitch said any sovereign rating action would result in the same rating action on Eskom, provided that all support-driven factors remained unchanged. - I-Net Bridge

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