Eskom coal

Eskom’s woes continue as Moody’s announces downgrade

The slide continues.

Eskom coal

The chickens have long come home to roost at Eskom and on Wednesday the state utility was struck with another blow as ratings agency Moody’s dished out a downgrade.

Moody’s cited bad governance and liquidity challenges as the main reason for the downgrade taking the power utility from a Ba2 rating to Ba3.

Eskom’s woes are not limited to those though, they are currently subject of an enquiry investigating several key players in #StateCapture, with former CEO Brian Molefe in the hot seat having to answer for dealings with companies linked with the notorious Gupta family.

Earlier it was reported that the parastatal is on the brink of insolvency as it was predicted that by January 2018 it will have entered a position of negative liquidity.

South Africa’s deteriorating credit profile also does not help the situation. It is well documented that the country is in financial dire straits, which decreases the likelihood of an urgent bailout.

The country’s own credit profile has been placed under review for another downgrade by the same ratings agency.

This was reflected on Moody’s report which attributed the current funding environment towards Eskom’s credit strength – or lack thereof.

According to the agency, the company needs a further R24 billion in funding.

“In addition, it will continue to have high ongoing financing needs over the period of its five year plan unless it can materially scale back capex, which is unlikely,” Moody’s said.

Both South Africa and Eskom’s individual ratings are currently under review and should the country’s credit profile be downgraded further, that will also affect the power utility’s rating as well.

A stark improvement in cooperate governance and its liquidity profile is essential for the utility to avoid a further downgrade.

Also read: Explainer: Why Eskom are now up shit creek without a paddle