Eskom has signed the R20bn credit lifeline with a consortium of local and international banks that it needed to stay afloat until the end of its financial year, but this was not enough to stave off a ratings downgrade by S&P Global Ratings.
The advance, announced on Wednesday, has been under negotiation for months.
Bankers were reluctant to lend more funds to the power utility until it had addressed corporate governance breaches.
In January, the Public Investment Corporation lent Eskom R5bn as a one-month bridging facility to help it avoid defaulting on its debt.
Eskom has come under increasing financial strain as it is completing costly capital investments in new power stations, while electricity sales have declined in a weak economy and its steep tariff hikes over the years have encouraged customers to save energy and find alternative power sources.
In December, the National Energy Regulator of SA declined Eskom’s request for a 19.9% tariff increase in 2018-19, granting it only 5.23%.
Eskom’s acting chief financial officer, Calib Cassim, said that the R20bn short-term facility would allow Eskom to continue resolving its governance-related issues and resume plans for funding for 2018-19.
The government made new appointments to Eskom’s board and executives in January, including respected businessmen such as Jabu Mabuza as chairman and Sifiso Dabengwa and Mark Lamberti as nonexecutive directors.
The announcement of the R20bn lifeline coincided with S&P saying that it had downgraded Eskom’s long-term foreign and local currency corporate credit ratings to CCC+ from B-with a negative outlook. S&P said the utility was at risk of distress or default in the next six months, despite securing R30bn in short-term funding so far in 2018. It concluded the possibility of the government supporting the power utility’s debt was less likely than previously, since the government had given it insufficient support in the past few months, despite Eskom’s persistent liquidity problems.
"The timing of the downgrade is unfortunate as we believe that we are starting to see slight improvements in market sentiments," Cassim said. "We will continue to engage with the ratings agencies and various key stakeholders on the implementation and progress of the turnaround strategy, with the ultimate goal of providing enough comfort to investors that we are on a path to stabilising Eskom’s operational and financial profile."
Eskom acting CEO Phakamani Hadebe said the downgrade was based on the power utility’s strained liquidity levels but it had taken visible steps to turn the group around. "We are comfortable that government has provided Eskom with tangible support to ensure that Eskom’s governance-related and liquidity challenges are expediently resolved," he said.
In January, Moody’s Investors Service downgraded Eskom’s long-term corporate family rating and zero coupon eurobonds family rating to B1 from Ba3 and said they remained on review for more downgrades. Moody’s and S&P downgraded the state-owned power utility’s long-term credit ratings in November.