Fitch Ratings downgraded Eskom’s bonds to its third tier of junk on Wednesday — a few days after Moody’s downgraded the power utility to its fourth tier of junk.
Fitch said it viewed Eskom’s standalone credit worthiness — the rating it would give it if it did not have state support — as "extremely speculative" CCC.
If not "due to the lack of timely tangible support" from its sole shareholder, the government, Fitch said it would have allowed Eskom to inherit the BB+ with stable outlook it has for South African government bonds.
Nevertheless, Fitch and Moody’s remain more optimistic about Eskom than S&P Global Ratings, which cut Eskom down to B- in November, the sixth tier of junk and only one notch above the "substantial risks" band of CCC+.
Fitch cut Eskom to BB- from BB, placing it one notch above highly speculative, and maintained its outlook as "ratings watch negative" — meaning a further downgrade is likely.
On Friday Moody’s cut Eskom to B1, which is equivalent to B+ in S&P’s and Fitch’s nomenclature and in the highly speculative band. Moody’s also tagged a "review for downgrade" outlook to its rating.
Andrew Canter, the chief investment officer of Old Mutual’s Futuregrowth Asset Management division who was among the first to flag problems at Eskom, told Bloomberg on Wednesday that he was still not willing to buy the utility’s bonds.
"The new Eskom board is an attempt to start the process of addressing the wider corporate governance concerns of investors," Fitch said in the note accompanying its ratings action.
"In seeking a new governance approach, the recently announced board comprises new members except for the reappointment of two existing members. While a new board can be a positive development from a corporate governance perspective, the process of appointing the new board members will still require formal consent from Parliament."
Eskom responded to Fitch’s ratings action on Wednesday with a media statement in which newly appointed acting chief financial officer Calib Cassim said: "The next few months will be difficult, but we need to work speedily and with a level of urgency in order to resolve our financial challenge. We are making progress in expediently resolving Eskom’s financial challenges; we will also continue engaging the rating agencies and the financial markets to address their concerns and improve investor sentiment and ultimately restore Eskom’s healthy liquidity position."