Embattled Eskom suffers another downgrade

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Cape Town - Global ratings agency Moody's on Friday downgraded to B1 from Ba3 the long-term corporate family rating (CFR) of embattled national power utility Eskom.

B1 indicates a "highly speculative" rating description. It is the fourth rung of non-investment grade debt, or junk debt. 

Moody's said in a statement the 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.

At the same time, the pressure on credit quality is mitigated by the strong likelihood that the steps announced on January 20, 2018 by Deputy President Ramaphosa, including replacing the Eskom board, together with the support of the National Treasury, would allow the company to secure sufficient funding to address a looming liquidity crisis.

In announcing the new board in a statement from the presidency, Ramaphosa also directed it to get rid of top employees accused of corruption, including Eskom's head of generation Matshela Koko and suspended Eskom CFO Anoj Singh.

While Singh has since resigned, Koko has not. On Friday he rejected the new board's ultimatum to resign within 24 hours or be fired and approached the Labour Court to salvage his position.

Moody's, one of the big three global ratings agencies, said the power utility would need to re-establish and maintain good access to domestic and international debt markets if it is to meet ongoing liquidity needs, continue to refinance existing debt as it falls due and fund investments.

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