Eskom looks for silver lining after Moody’s downgrade
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Johannesburg – Power utility Eskom is searching for a silver lining after Wednesday’s further downgrade of its credit rating by Moody’s investor service.
Moody’s downgraded the power utility’s credit ratings from B2 from B1, citing an absence of concrete plans to place its business on a sound financial footing.
B2 is the fifth rung of sub-investment grade debt.
“While the downgrade is disappointing, it is worth noting that in its decision, Moody’s acknowledges the positive strides that the new board and the new interim group chief executive have made in the two-month period that they have led the organisation,” said Eskom in a media statement on Thursday morning.
“The new Eskom board is investing a considerable amount of time in formulating a comprehensive long-term strategy and plan that will place Eskom’s business on a firmer footing. We are confident that the execution of the turnaround strategy will be accompanied by positive gains,” it said.
Moody’s said in its ratings action that, despite some improvement in the company in relation to corporate governance and liquidity, there was stilll “limited visibility at this juncture as to Eskom’s plans for placing its longer-term business and financial position on a sustainable footing.”
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Moody’s acknowledged that after Eskom’s board was replaced in January, the power utility had obtained sufficient short-term funding to address a looming liquidity crisis, and secure a ‘going concern’ sign off on its interim accounts.
It also said that the replacement of the board had decreased the likelihood of imminent near term default.
But it said that conditions at the company remain challenging”. In January then finance minister Malusi Gigaba said that Eskom’s financial position posed a risk to the the country’s economy and fiscus.
“This reflected the lack of tariff increases in the face of flat demand and the need for a reduction in operating costs and a change in the company’s business model, potentially involving private sector participation,” states Moody’s.
“However, the budget did not provide for any tangible financial support, as the government has demonstrated on prior occasions when the company has been under stress.”
‘The future looks promising’ – Eskom chief
Eskom’s interim group chief executive Phakamani Hadebe said in a statement that despite the disappointment, “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,” he said.
“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.”
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