Fitch Ratings affirms Eskom’s ‘BB-‘ credit rating (South Africa)

Fitch Ratings has announced its decision to maintain Eskom Long-Term Local Currency Issuer Default Rating (IDR) and unguaranteed local currency senior unsecured ratings of ‘BB-‘.

According to the South African parastatal, the ratings agency has simultaneously maintained the National Long-Term Rating at ‘A(zaf)’ and the National Short-Term Rating at ‘F1(zaf)’. The rating agency has also affirmed the government-guaranteed local currency senior unsecured debt ratings at ‘BB+’, in line with the rating of South Africa (BB+/Stable Outlook).

Eskom’s credit ratings; except for the government guaranteed debt, remain on Rating Watch Negative (RWN) as instituted by Fitch in January 2018.

In a company statement, Eskom said that it views the ratings decisions by Fitch Ratings as positive; 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.

The rating agency does acknowledge that the company has made positive strides in addressing its liquidity challenges; however, Fitch Ratings maintains that Eskom’s liquidity challenges remain the main rationale for their RWN position on the company’s rating. Eskom successfully raised R57 billion from the financial markets for the year ending 31 March 2018; R43 billion of which was raised between January and March 2018.

Eskom is confident that it will successfully execute its R72 billion FY18/19 funding requirement through various sources including committed Development Finance Institutions (DFIs), local and international debt capital markets, Export Credit Agencies (ECAs) and other innovative funding structures. At 31 March 2018, the company had secured 16% (R11 billion) of this funding requirement.

Eskom has also submitted the R66.6 billion Regulatory Clearing Account (RCA) applications for 2015, 2016 and 2017 years; the National Energy Regulator (Nersa) public hearings on these applications are currently underway with the announcement on the Regulator’s decision expected by 21 June 2018.

Future Sustainability

Eskom’s Interim Group Chief Executive, Phakamani Hadebe said: “We are encouraged by Fitch Ratings’ decision to affirm Eskom’s credit ratings and we acknowledge the continuing Ratings Watch Negative status.

“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 added: “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”.

Calib Cassim, acting chief financial officer added: “While we are cognisant of the multiple challenges faced by the company; we remain confident that we will successfully execute the FY18/19 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.”