Johannesburg - Rating agency, Moody's Investors Service (Moody's) on Friday, downgraded to B1 from Ba3 the long-term corporate family rating (CFR) of South Africa's power utility, Eskom Holdings SOC Limited (Eskom) and the zero coupon eurobonds to B1 from Ba3 in line with the CFR.
"Concurrently, Moody's has downgraded to (P)B2/B2 from (P)B1/B1 the global medium term note (GMTN) programme and the senior unsecured GMTNs of Eskom," Moody's said in a statement.
Moody's said it downgraded the probability of default rating (PDR) to B1-PD from Ba3-PD; and the national scale rating (NSR) long-term corporate family rating was been downgraded to Baa2.za from A3.za.
Moody's said that all ratings remained "under review for further downgrade".
"Today's rating action reflects the deterioration in Eskom's financial and liquidity position with no prospect of a near term equity injection by the government to shore up its weak financial profile," Moody's said.
"At the same time, the pressure on credit quality is mitigated by the strong likelihood that the steps announced on 20 January 2018 by Deputy President Ramaphosa, including replacing the Eskom Board, together with the support of the National Treasury, will allow the company to secure sufficient funding to address a looming liquidity crisis."
Eskom will need to "re-establish and maintain good access to the domestic and international debt markets" if it is going to meet liquidity needs; continue to refinance existing debt as it falls due and fund investments.
The ratings remain under review for downgrade, pending evidence of the company's ability to meet its financing needs and stabilise its financial position; and reflecting the potential deterioration of the South African government's credit profile, "in particular in the country's institutional, economic and fiscal strength, as captured by Moody's November 2017 decision to place South Africa's Baa3 government bond ratings on review for downgrade".
"Eskom has faced mounting liquidity risks in recent weeks, primarily driven by lenders' unwillingness to provide additional funding to the company in the context of serious questions around corporate governance, a lack of leadership and failing trust in the company," Moody's said.
"The government's announcement, on 20 January 2018, seeking to address these issues through the replacement of the existing Eskom Board members and the plan to tackle long term funding and structural issues is a positive first step towards restoring confidence in the company and, over time, operational performance and its financial position."
Moody's added that the rating action also factored in the December decision by the National Energy Regulator of South Africa (NERSA) to allow Eskom to increase revenue by 5.23 percent in FY2018/19, well short of the 19.9 percent proposed by the company, saying the decision would put further pressure on the company's "already weak cash flow".
"Moody's views positively the government's statement that the Ministers of Public Enterprises, Energy and Finance will work together under the leadership of the Deputy President to deal with structural issues including the funding model and other industry challenges. Nonetheless, the company's challenges are complex and are likely to take time to resolve."
On Saturday, the Presidency announced that Phakamani Hadebe has been appointed Eskom acting chief executive officer (CEO) with immediate effect, while Jabu Mabuza will take over as chairman of the board, and all Eskom executives facing allegations of serious corruption and other acts of impropriety, including Matshela Koko and Chief Financial Officer Anoj Singh, would immediately be removed.
A number of measures were being taken to to "strengthen governance" at Eskom, including the appointment of new board members and stabilising management at the energy parastatal, it said.
This followed a meeting of President Jacob Zuma, Deputy President Cyril Ramaphosa, Public Enterprises Minister Lynne Brown, and Finance Minister Malusi Gigaba on Friday to address urgent problems at the company. This intervention would be ratified by Cabinet at its next meeting.
Eskom had been facing several problems, including a weak financial position, declining revenues, and governance failures, which threatened the sustainability of the company in future.
Therefore, government had decided on immediate measures to strengthen governance and management. This was the first step towards restoring confidence in the company, improving its financial position, and restoring its operational performance.
The new board members are Jabu Mabuza (chairman); Sifiso Dabengwa; Sindi Mabaso-Koyana; Mark Lamberti; Tshepo Mongalo; Malegapuru Makgoba; Busisiwe Mavuso; Nelisiwe Magubane; Rod Crompton; George Sebulela; Pulane Molokwane; Banothile Makhubela; and Jacky Molisane.
The ministers of public enterprises, energy, and finance would work together under Ramaphosa's leadership to deal with other structural issues, which included the funding model and other industry problems identified by the inter-ministerial committee on state-owned enterprises (SoEs) reform.