S&P Global Ratings has again downgraded the long-term debt of Eskom. The power utility’s debt has been rated ‘CCC+’, the seventh rung of non-investment grade, with a negative outlook. It was previously classed as ‘B-‘, the sixth rung of junk debt. In a media statement S&P said the cash-strapped power utility remains at risk of a default in the next six months.
This is despite Eskom having received R30bn in short-term funding commitments from local and international funders in January and February this year. The ratings agency said that while Eskom is working on addressing is liquidity challenges, including reducing its fiscal 2018 funding requirements by R14bn, it sees limited additional scope for cost cuts.
It added that the 2018 Budget, which was presented by former finance minister Malusi Gigaba on Wednesday last week, failed to convince it that government has a sufficiently extensive support framework for the power utility. “Although the South African government has taken measures to help Eskom, we think that government support to the utility over the past few months has been insufficient,” it said.
Measures the state has taken this year to shore up Eskom include the appointment of a new board and assistance towards the R30bn short-term loan. “In our view, the government support made available in recent months provided insufficient evidence of the government’s ability and willingness to address severe and imminent liquidity stresses in a timely or sustainable manner,” it said.
“Despite recent events indicating that the government would adopt a more constructive attitude towards supporting its state-owned enterprises, including statements by the president in his State of the Nation Address, the support framework set forth in the budget speech on February 21 2018 fell short of our expectations.”
Eskom has not immediately responded to a request for comment.
This article was first published by Fin24 and is republished here with permission
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