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Eskom dodges Fitch ratings cut but stays on negative watch

Cape Town - Global ratings agency Fitch on Wednesday affirmed Eskom's 'BB-' credit rating, despite its liquidity challenges. This announcement comes as South Africans are waiting to hear if load shedding will become a reality this winter.

The power utility was dealt a blow earlier this year when Fitch Ratings and S&P Global Ratings downgraded its bonds to junk.

Fitch affirmed Eskom's long-term local currency issuer default rating (IDR) and unguaranteed local currency senior unsecured ratings at speculative grade of 'BB-'.

"We are encouraged by Fitch Ratings’ decision to affirm Eskom’s credit ratings," said Eskom acting CEO Phakamani Hadebe.

Fitch also maintained the national long-term rating at 'A(zaf)' and the national short-term rating at ‘F1(zaf)'.  

The rating agency affirmed the government-guaranteed local currency senior unsecured debt ratings at 'BB+', in line with the rating of South Africa.

However, Eskom’s credit ratings, except for the government guaranteed debt, remain on rating watch negative (RWN) as instituted by Fitch in January 2018.

The power utility acknowledges the continuing RWN status, said Hadebe, who is set to brief the public on the state of the system from Megawatt Park on Thursday.

"To ensure Eskom’s future sustainability the Eskom board has embarked on a turnaround business strategy with a core focus on financial viability, continued strong operational performance and the complete resolution of governance related challenges," he explained in a statement.

Although Fitch noted Eskom's positive strides in addressing its liquidity challenges, it maintains that these challenges remain the main rationale for its RWN position on the company’s rating.

"The rating agency is cognisant of the positive measures that have been implemented by the new board and management to turn the company around in their short tenure at Eskom," Fitch said in a statement.

Eskom raised R57bn from the financial markets for the year ending March 31 2018, R43bn of which was raised between January and March 2018. This occurred after a new board was appointed to rescue the ailing state-owned entity.

"We are reassured by the rating agency’s acknowledgement of the progress made to date and we are confident that the positive trajectory will continue to a point where the company attains acceptable operational and financial sustainability," Hadebe said.

Eskom acting chief financial officer Calib Cassim noted the utility is confident that it will successfully execute its R72bn funding requirement for the 2018/19 financial year.

This will be done through various sources including committed development finance Institutions, local and international debt capital markets, export credit agencies and other innovative funding structures.

As at March 31 2018, the company had secured R11bn, about 16%, of this funding requirement.

"The various engagements with key financial markets stakeholders have confirmed a renewed local and international investor appetite in Eskom. This has also been demonstrated by the tangible support received from these stakeholders and their willingness to constructively continue engaging Eskom," said Cassim.

Eskom also submitted the R66.6bn Regulatory Clearing Account applications for the 2015, 2016 and 2017 years.

Energy regulator Nersa's public hearings on these applications are currently under way, with the announcement on the regulator's decision expected by June 21 2018.

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