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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.”