Moody’s downgrades Eskom’s ratings with negative outlook

Moody’s Investor Services has downgraded power utility Eskom’s credit ratings, this just a day after announcing a downgrade of South Africa’s five major banks.

In a statement on Wednesday morning, Eskom announced that Moody’s had downgraded the corporate family rating (CFR) of Eskom Holdings SOC Limited (Eskom) to Ba2 from Ba1.

The rating agency also revised the senior zero coupon Eurobonds (Section 7 debt under the Eskom Conversion Act, 2001) rating to Ba2 from Ba1 in line with the CFR, while simultaneously, Moody’s had downgraded to Ba3/(P) Ba3 respectively the unsecured global medium term notes (GMTN) and GMTN programme of Eskom.

The outlook on all ratings was negative, Eskom added.

“We note the Moody’s rating action as primarily driven by the downgrade of the Sovereign credit rating,” Anoj Singh, Eskom’s chief financial officer, said.

“Eskom has secured 53% of this fiscal year’s funding requirement and we remain resolute that we will fully execute the required funding for the year, albeit under challenging market conditions.

“Our liquidity levels remain healthy and Eskom’s financial profile continues to improve and stabilise. Backed by the availability of the government guarantees and the stable financial profile, we do not foresee significant impediments in the execution of the remainder of the FY17/18 funding requirement.”

On Tuesday, Moody’s pointed to a weakening government credit profile leading to its reduced capacity to provide support to banks in case of need when it downgraded the five largest South African banks with a negative outlook.

Moody’s downgraded the long-term local and foreign-currency deposit ratings of the five largest South African banks one notch above investment grade to Baa3 with a negative outlook from Baa2.

The downgraded banks were Standard Bank, FirstRand Bank, Absa, Nedbank, and Investec.

The ratings agency said the primary driver for rating downgrades was the challenging operating environment in South Africa, characterised by a pronounced economic slowdown, and weakening institutional strength.

The rating agency had said it expected GDP growth of only 0.8 percent in 2017 and 1.5 percent in 2018, from 0.3 percent in 2016, levels significantly below the government’s target growth.

The South African economy last week entered a recession for the first time since 2009, after growth contracted by 0.7 percent in the first quarter of the year.