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S&P drops Eskom to ‘highly speculative’

By Nicola Mawson Time of article published Apr 7, 2017

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Johannesburg

– S&P has downgraded Eskom’s credit rating, dropping it from the lowest

level of junk to “highly speculative”, with a negative outlook.

This

rating review follows its Monday’s announcement that it was cutting SA to junk –

the first rating agency to do so.

Moody’s

has placed SA’s sovereign rating – two levels above junk – and Eskom’s rating

on review as well. It may release a decision today. Fitch, the other big three

rating house, yes yet to make a statement about SA, which it has a level above

junk.

Companies

cannot have a rating higher than that of a country.

In a

statement released late on Thursday, S&P cited the deep divisions in

the African National Congress-led government that have led to changes in the

executive leadership of government, which may weaken political and

institutional stability.

“We believe that the downgrade of the sovereign signals a

weakening of the government's ability to provide support to Eskom if needed.”

Just more than a week ago, President Jacob Zuma shuffled

the Cabinet, axing nine ministers including then Minister of Finance Pravin

Gordhan, who was replaced by Malusi Gigaba, from Home Affairs. This led to

S&P’s downgrade.

Read also:  Moody's places Eskom on review for downgrade

S&P says its rating on Eskom does reflect its assessment

of an extremely high likelihood of government support, but also factors in the

continuing very substantial gap between Eskom’s stand-alone credit profile and

its global scale rating.

It does not Eskom’s vital role, the fact that if provides

an essential commodity, it is supported by government and has previously

received capital injections.

“Although we still believe that Eskom will benefit from

considerable government support, the predictability of such full and timely

government support in all circumstances is decreasing.”

S&P says Eskom could be moved back to stable if SA’s

rating changes, and if Eskom’s funding situation stabilises

In response, on Friday morning, Eskom CFO Anoj Singh pointed out that 72

percent of the R72 billion in funding required for the current year will be

secured by the end of this month.

Singh

said “We are confident that 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.”

BUSINESS REPORT

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