Eskom has welcomed the decision by S&P Global Ratings to upgrade the power utility’s credit ratings and revise its outlook as the government has come forth to shoulder the majority of the power utility’s debt.
S&P on Friday upgraded Eskom’s long-term issuer credit rating to “B” from “CCC+” with a stable outlook on the group’s senior secured and senior unsecured debt.
In addition, S&P Global also upgraded Eskom’s South Africa national scale rating to “zaBBB/zaA-2” from “zaB/zaB”.
S&P said the credit rating upgrade was due to its expectation that the South African government’s R254 billion financial support package will cover Eskom’s debt servicing and repayment obligations over the current and coming two financial years.
S&P credit analyst Omega Collocott said the stable outlook reflected their view that the group’s creditworthiness would continue to benefit from explicit and timely support from the government, facilitating a strengthening of Eskom’s liquidity position and less risk of default as the debt relief agreement was implemented as stipulated.
“The ratings on Eskom reflect its relationship with the South Africa government and the latter’s capacity to provide sufficient and timely extraordinary support,” Collocott said.
“We see a very high likelihood that the government would continue to provide timely and sufficient extraordinary support to Eskom in the event of distress.”
S&P said it could lower the rating if the conversion of the subordinated loans to equity does not materialise due to Eskom’s inability to comply with the debt relief package’s conditions or if amendments to the act materially change the original conditions such that we observe a potential rise in liquidity or default risk over the next 12 months.
S&P could also take a negative rating action if it noted a sharper-than-expected deterioration in Eskom’s operating performance.
Eskom’s acting group CEO, Calib Cassim, said the the debt relief package extended to Eskom by National Treasury was being used to cover debt service requirements and was enacted on condition that Eskom did not incur any further indebtedness over the next three years without explicit approval of the minister of finance.
“Eskom welcomes the decision to upgrade the company’s credit rating by S&P Global,” Cassim said.
“We continue to work with key stakeholders, particularly shareholder ministries as we implement our turnaround plan with a focus on key strategic objectives which include operations and financial recovery; people, culture and ethics, and legal separation of the business.”
Meanwhile, Eskom yesterday ramped up load shedding to Stage 4 until Saturday morning due to the increasing demand combined with insufficient generating capacity and the need to manage the emergency reserves.
At least 500 megawatts of generating capacity was taken off-line, while in the same period 600MW were returned to service, and about 1 300MW was anticipated to return to service by Tuesday evening.
The struggling utility said its load forecast for the evening peak demand was 28 123MW.