Fitch Ratings Further Downgrades Eskom’s Junk Status

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  • Ratings agency Fitch has downgraded Eskom’s junk status from Long-Term Local-Currency Issuer Default Rating (IDR) to ‘B’ from ‘B+’ with a Negative Outlook.
  • Fitch has also downgraded the senior unsecured debt to ‘B’/’RR4’ from ‘B+’/’RR4’ and the senior unsecured guaranteed debt to ‘BB-‘ from ‘BB’. 
  • The downgrade also reflects the sovereign downgrade on 20 November 2020 to ‘BB-‘/Negative from ‘BB’.

Fitch however, assesses the government’s ownership and control of the company as ‘Strong’ and its support track record and expectations as ‘Moderate’ despite the committed equity support. The government’s support has not prevented an unsustainable financial profile at Eskom for an extended period of time. However, Fitch expects the government to ensure Eskom maintains adequate liquidity to service interest and debt, given the socio-political and financial consequences for the country of a default by Eskom.

The ratings agency also noted that Eskom’s turnaround plan was “progressing slowly” but the COVID 19 effect may require more liquidity should the government-imposed lockdown and national blackouts persist. This despite existing state equity support and planned external debt financing.

Related news: Eskom reports a net loss of R20.5 billion

Fitch also noted that Eskom’s plan to create separate business divisions is progressing gradually and the company expects the separation of Generation, Transmission and Distribution entities will enable them to focus on their respective business including lowering carbon intensity as well as financing activities such as accessing Green financing. However, there is no clarity on the final credit linkages between the three entities and the parent company once this unbundling is complete.

Link to full report HERE

Author: Bryan Groenendaal


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