S&P downgrades Eskom

Cape Town - S&P Global Ratings has lowered the ratings of Eskom, with a negative outlook, it announced on Thursday.

Eskom's long-term foreign and local currency corporate credit ratings was scaled down to 'B+' from 'BB-'. The outlook is negative.

S&P also lowered Eskom's long-term South Africa national scale rating to 'zaBB-' from 'zaBB+'. The ratings agency affirmed the short-term national scale rating at 'ZaB'.

The downgrade follows S&P's downgrade of South Africa's long-term foreign currency rating Cut to junk status on political and institutional uncertainty.

"We believe that the downgrade of the sovereign signals a weakening of the government's ability to provide support to Eskom if needed."

S&P said the ratings on Eskom continue to reflect their assessment of an extremely high likelihood of government support, but also factor in the continuing very substantial gap between Eskom's stand-alone credit profile (SACP) of 'ccc+' and its global scale rating.

"However, although we still believe that Eskom will benefit from considerable government support, the predictability of such full and timely government support in all circumstances is decreasing in our view."

S&P stated that there is uncertainty as to whether the government would be willing to provide additional support to Eskom over the course of the ongoing court case against Eskom and regulator Nersa, which is still in arbitration and could lead to Eskom receiving considerably lower tariff increases in fiscal 2019 (ending March 31, 2019) than assumptions of 8%-10%.

"A negative outcome would increase pressure on Eskom's liquidity, which we already view as weak," it said.