Eskom cape town

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Moody’s: Government’s Eskom bailout is a ‘credit negative’ slippery slope

The rating agency warned that the South African government was entering into a slippery slope that would be hard to recover from.

Eskom cape town

Image via: Max Pixel

Moody’s rating agency, the only major credit-rating company to have South African debt at investment grade, warned that the recently-approved Eskom bailout was “credit negative”.

Eskom’s bailout under the spotlight at Moody’s

This comes after Finance Minister, Tito Mboweni revealed that, as part of the Appropriation Bill’s mandate, National Treasury was going to funnel R59-billion, in chunks, to the embattled power utility.

This, Mboweni revealed that, along with the awaited announcement of the state-owned entity’s incoming Chief Restructuring Officer (CRO), this was the first step in actioning Eskom’s turnaround strategy.

He also warned that the R59-billion was not going to be received by the power utility in a single lump sum, but that it would be divided in chunks and serviced on condition that the utility meets specific requirements.

Why Moody’s thinks more bailouts is a bad move

In a recently-published issuer comment, Moody’s described the government’s decision — in not so many words — as a slippery slope, as it was yet a further drain on the state’s fiscal resources.

Moreover, Moody’s indicated that the lower-than-expected tax revenues for this season, coupled with the billions of rand in bailouts that have been earmarked for SOEs like Eskom and SABC mean that South Africa will have to inherit more debt in borrowing than expected.

“If passed, the additional support to ease the company’s financial pressures would be credit negative for South Africa,” the agency warned.

Furthermore, the rating agency also raised concerns about the power utility’s failure to produce a solid turnaround strategy that speaks to its plan on functioning independently, casting doubt on its ability to exist without aid from the government.

“The lack of a strategy to return Eskom to a more stable financial situation that would reduce the need for government support exacerbates the problem for the government,” it added.