Eskom 'dissappointed' as Moody's cuts its unsecured debt further into junk


Power utility Eskom says it is disappointed by the further downgrading of its unsecured debt by ratings agency Moody's.

The downgrade follows a decision by Moody's on Friday to leave SA's long-term foreign-currency and local-currency issuer rating at Baa3, the last rung of investment grade. Moody's did, however, change the outlook for SA's credit rating from "stable" to "negative".

While Eskom's government-guaranteed debt remained unchanged at Baa3 – in line with SA's sovereign debt - its unsecured debt is another matter. On Tuesday Moody's announced it had downgraded to B3 from B2 the long-term corporate family rating of Eskom. B3 is the sixth rung of non-investment grade, according to Moody's ratings hierarchy. The struggling power utility's zero coupon eurobonds were also downgraded to B3 from B2.

Eskom, in a statement, said its current board and management had "worked painstakingly hard to try and resolve corporate governance issues of the past regime". It added it was cautiously confident its debt obligations are not at risk.

"Whichever option gets implemented through the unbundling processes, we will ensure that our creditors will not be compromised and that the execution of these options gets done under acceptable legal frameworks," said Eskom's acting group chief executive and interim executive chair Jabu Mabuza. "Our electricity supply system remains fairly constraint, but we are doing everything we can to make sure that the supply is not compromised."

In its rating assessment Moody's said that, while it noted the SA government's commitment to provide financial support to Eskom, the power utility was facing a raft of challenges. These include very high indebtedness, limited revenue growth, poor plant performance, an ageing fleet and a history of weak corporate governance.

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