Eskom’s recent interim results were good enough for S&P Global to hold the utility’s credit rating at CCC+ with negative outlook in its latest report released on Thursday night.

In February, S&P downgraded Eskom to its seventh tier of junk, CCC+, from B-. 

Maintaining its negative outlook indicates S&P may cut Eskom to CCC, moving it from “substantial risks” to “extremely speculative” within the next six months.

“Operational issues, including coal shortages mainly due to underinvestment at tied mines, as well as a recent above-inflation wage settlement and other challenges in achieving short-term cost-cutting goals, continue to place pressure on margins and cash flow,” S&P said in Thursday night’s media release.

The credit agency’s latest report came shortly before Eskom announced it was escalating rolling blackouts from stage 1 to stage 2 because maintenance problems required it to reduce its electricity supply by 2GW.

“At the same time, SA’s poor economic growth trajectory constrains electricity demand, and persistently high municipal debt levels make it difficult for Eskom to collect significant accounts receivables,” S&P said.

S&P said although Eskom’s management and governance has been improved, it remains weak.

One major improvement in Eskom’s results for the first half of its 2019 financial year was that its auditors were willing to sign the statements without flagging serious issues of concern.

A qualified audit of Eskom’s 2017 financial year results triggered covenant breaches of R15bn worth of loans from the Development Bank of SA (DBSA).

“We note, however, that despite being unqualified, the opinion on Eskom’s 2018 interim and fiscal 2018 financial statements included an emphasis on Eskom’s ability to operate as a going concern,” S&P said.

Statistics SA is scheduled to release SA’s third-quarter GDP next Tuesday, December 4, which is expected to show small growth after two consecutive quarters of contraction.

S&P said low economic growth and stagnant per capita GDP required the regulator, the National Energy Regulator of SA, to balance Eskom’s revenue requirements against affordability of power to industrial and retail consumers.

“We believe that the regulator is unlikely to approve the 15% tariff increase application for fiscal 2020 to fiscal 2022,” S&P said.

“Despite the recent improvement in cash balances to R16.8bn at September 30, and a more constructive funding environment, Eskom continues to have unsustainable levels of leverage and R23.7bn of debt to service over the six months ending March 31, 2019,” the report said.

Eskom issued a media statement on Friday in which CFO Calib Cassim said “we are encouraged by S&P’s decision to affirm our credit ratings.”

Eskom CEO Phakamani Hadebe said: “We continue to focus on finalising Eskom’s strategy blueprint and corporate plan. We will make the necessary decisions to advance this company to a better position, there by ensuring that we support SA’s growth and development plans by ensuring consistent security of supply.”