Moody’s pushed Eskom’s credit rating deeper into sub-investment territory on Tuesday, saying a government plan to reorganise the cash-strapped power utility would be hard to implement without explicit support from the Cabinet.
Moody’s cut Eskom’s long-term corporate family rating, or unguaranteed debt, to B2 from B3, six notches below the investment grade level, with a negative outlook.
The ratings agency also cut the rating on the utility’s zero-coupon eurobonds from B3 to B2.
On Friday, Moody's kept South Africa’s sovereign debt at Baa3, the lowest rung of investment grade, but revised the outlook on that rating to negative.
Government announced a sweeping overhaul of the power sector in a paper published last Tuesday, confirming the breakup of Eskom over the next three years and opening the industry up to more competition.
The paper set out a vision for a restructured electricity supply industry, where Eskom would relinquish its near-monopoly and compete with independent power producers to generate electricity at the least cost.
Moody’s said the plan could bring modest financial benefits for the company over the medium term, but failed to address pressing, immediate issues.
“Important questions, including how the rights of existing creditors will be respected as Eskom is reorganised, remain unanswered,” the agency said.
“This makes any turnaround of the company’s operations very difficult without a clear steer and support from government.”
Local analysts have said the plan does not appear to have full buy-in from President Cyril Ramaphosa’s Cabinet and the governing ANC.
Moody’s said weak corporate governance and political sensitivity around Eskom’s tariffs and its high employment levels would compound the constraints on the turnaround plan.
In response, Eskom noted Moody’s decision “with disappointment”, but said it was working to resolve its challenges.
“Liquidity levels remain low. We have, however, seen a considerable amount of support for the Eskom paper from local markets, coupled with the financial support announced by the government. We are cautiously confident that our debt obligations are not at risk.”
The National Union of Mineworkers, which supported Ramaphosa’s campaign for party presidency in 2017, has threatened to cause more power cuts over government’s decision to forge ahead with the plan to break up Eskom. – Reuters
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