If government accepts Eskom's request for it to assume R100bn of the power utility's government-guaranteed debt, credit implications for the country will depend on whether effective measures are taken to improve Eskom's financial health and reduce future contingent liability risks for the government.
This was the view expressed by Moody's in a research report released on Wednesday.
The ratings agency emphasised that the research report by Lucie Villa, a Moody's lead sovereign analyst for SA, did not constitute a rating action.
Eskom is currently rated as B2 negative by Moody's, and the SA government as Baa3 stable.
Moody's notes that the request from Eskom follows a sharp rise in its debt to around ten times its earnings before interest, tax, depreciation and amortisation (EBITDA) as of its March 2018 fiscal year end (FYE). This was due to low tariff increases, a large capex programme, cost overruns and rising interest costs.
The report regards Eskom's current financial profile as one that would normally be unsustainable for a going concern.
Moody's does not currently include Eskom's government-guaranteed debt - R252bn of a total debt of R419bn, as of September 2018 - in the SA government's debt levels.
Therefore, such a transfer would increase SA's debt/GDP ratio by around two percentage points from the 55.8% envisioned for the fiscal year 2019 in the latest mini budget.
Could be neutral – but no certainty
Moody's said that, if the debt transfer grants further measures like efficiency savings and/or tariff increases requested by Eskom in October that reduce the contingent liability risk, the overall credit impact of the debt transfer could be neutral.
However, Moody's added that there was no certainty this would be the case.
"Eskom has already delayed its turnaround strategy twice, highlighting the complexity of designing, let alone implementing a plan that durably restores liquidity and solvency," states the report.
"Measures to cut costs and improve the recovery of arrears from local governments as well as the National Energy Regulator of SA's decision on Eskom's request for a tariff hike - due to be announced on 1 March 2019 - will be crucial for any improvement in Eskom's financial trajectory."
The report further points out that the decision to transfer debt also comes with what it calls a "moral hazard".
"The debt transfer would likely be embedded in the next budget in February 2019, while (Eskom's) cost-cutting measures would likely take place after the 2019's elections," states the report.