Eskom’s credit rating was cut to the fifth tier of junk status by Moody’s on Wednesday night.
Moody’s downgraded Eskom to B2 from B1, which is equivalent to B in S&P Global Ratings’ and Fitch’s nomenclature.
S&P cut Eskom to its seventh tier of junk, CCC+ in February while Fitch rates Eskom BB-, making it the most optimistic of the big three ratings agencies about the power utility’s credit-worthiness.
Moody’s said despite the efforts by President Cyril Ramaphosa to bolster Eskom by appointing a new board, it was concerned about "the lack of any tangible financial support for the company in the February state budget".
The ratings agency said it was concerned that Eskom’s R367bn debt burden reported in its six months to end-September results "could grow to potentially unsustainable levels".
Eskom needs to borrow about R72bn in the current financial year; which includes repaying a R20bn "club loan concluded under the government guarantee".
Moody’s said that "given a new board with much greater experience and credibility", Eskom should have an easier time getting the required loans.
"However, Eskom’s challenges are complex and not easy to resolve. They include stagnant demand, potentially driving declining output from its coal-fired generation plants as renewables output increases and a large committed investment programme," Moody’s said.
"Moody’s acknowledges action by the South African government in January in replacing the board at Eskom to address pressing corporate governance and trust issues, which was instrumental in allowing the company to: firstly, obtain sufficient short-term funding to address a looming liquidity crisis; secondly, secure a ‘going concern’ sign off on its interim accounts; and thirdly, reduce the likelihood of imminent near-term default," the note said.
Eskom's new interim group CE Phakamani Hadebe said in a media release on Thursday morning: "While we are disappointed with Moody’s decision at this stage, the future looks promising.
"We have addressed the liquidity issue and other key challenges. The new board and Eskom leadership are swiftly moving into the second intervention stage by formulating an integrated strategy that will yield favourable results.
"The positive sentiments expressed by Moody’s encourage us to work even harder to ensure the execution of this strategy. I am confident that we will stabilise the credit profile of Eskom and improve its credit rating.”