Fitch Ratings lowers Eskom’s outlook to negative

Ratings agency Fitch Ratings has lowered its outlook on Eskom’s junk-status credit rating to negative, saying on Monday that the embattled power utility’s revenue prospects had darkened.

The company’s standalone credit profile has been lowered to ccc-, due to the expectation of higher primary energy costs and lower tariff awards.

This rating points to high levels of credit risk, and that there is a substantial risk of default. The standalone credit rating makes an assumption that external assistance will not be forthcoming.

Fitch affirmed Eskom’s long-term, local-currency issuer default rating at BB-.

Fitch highlighted the provision of equity support of R151bn from the SA government to 2023, adding that it expect this will cover the company’s entire cash interest obligations.

“However, Fitch estimates the equity support will only cover about 50% of total debt service, including interest costs and debt maturities,” Fitch said. “This is a key consideration in addressing the going-concern risk and it provides Eskom with 12-18 month flexibility to finalise and execute its turnaround plan.”

In a statement on Monday, Eskom said that it had noted Fitch’s comments that the explicit government support for the company was a positive, and would mitigate liquidity challenges.

“We continue to engage with our shareholder ministries on feasible options to transition Eskom to financial sustainability,” Eskom’s acting group CEO Jabu Mabuza said in the statement.

“We are not complacent and we are aware of how vital Eskom is to ensuring that SA’s economic growth targets are achieved, and ensuring security of supply remains one of our key priorities.” 

gernetzkyk@businesslive.co.za