Eskom receives two-notch rating boost from S&P Global

S&P Global Ratings has upgraded Eskom by two notches, citing the government’s substantial financial support.

Eskom’s credit rating was lifted to B, five levels into junk from CCC+ by S&P, with a stable outlook on the group’s senior secured and senior unsecured debt.

The global ratings agency also upgraded the utility’s national scale rating to ‘zaBBB/zaA-2’ from ‘zaB/zaB’.

Rating welcomed

Eskom has welcomed the upgrade of the company’s credit rating by S&P Global.

Eskom’s Acting Group Chief Executive, Calib Cassim, said: “We continue to work with key stakeholders, particularly shareholder ministries as we implement our turnaround plan with a focus on key strategic objectives which include operations and financial recovery; people, culture and ethics, and legal separation of the business.”

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S&P said the upgrade is due to the South African government’s R254 billion financial support package, as part of the parastatal’s Debt Relief Act, signed into law on 7 July.

This, it said, will cover Eskom’s debt servicing and repayment obligations over the current and coming two financial years resulting in an improvement of the company’s credit quality.

“The stable outlook reflects S&P Global’s view that Eskom’s creditworthiness will continue to benefit from explicit and timely support from the South African Government, facilitating a strengthening of Eskom’s liquidity position and less risk of default as the debt relief agreement is implemented as stipulated.”

Debt relief

Eskom said the debt-relief package extended to it by National Treasury is being used to cover debt service requirements and was enacted on the condition that the utility does not incur any further indebtedness over the next three years without explicit approval of the Minister of Finance Enoch Godongwana.

The long-term corporate rating of Eskom was upgraded by Moody’s Investors Service to B2 in September, five levels below investment grade.

However, analysts expect Eskom’s operating performance to remain under pressure due to weak operating efficiency.

On Friday, South Africa was subjected to stage 6 load shedding, with Eskom citing generation capacity constraints and diesel shortages.

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