Moody’s Investors Service raised its outlook on Eskom’s debt ratings to positive for the first time in 15 years in a move seen to be an affirmation to the announcement by government last week that it will absorb a large chunk of the utility’s R400-billion debt.
Moody’s in its ratings update on Eskom changed its outlook on the embattled utility from negative to positive.
“Moody’s has also affirmed the Ba2 ratings on Eskom’s notes, which benefit from the unconditional and irrevocable guarantee of the government of South Africa,” the entity said.
Moddy’s change in attitude towards Eskom comes a week after Finance Minister Enoch Godongwana used the medium-term budget policy statement to announce that government will step in and assist Eskom deal with its perilous financial position.
“For at least a decade, we have spent billions of rands supporting Eskom with limited improvements in the reliability of the electricity supply or the financial health of the company,” Godongwana said.
“To ensure Eskom’s long-term financial viability, government will take over a significant portion of the utility’s R400-billion debt.
“While the selection of the relevant debt instruments and the method of effecting the relief is still to be determined, the quantum is expected to be between one-third and two-thirds of Eskom’s current debt.
“The debt takeover, once finalised, together with other reforms will ensure that Eskom is financially sustainable.”
Moody’s said a partial debt transfer will be complex and would require careful management given the “diverse creditor base and varying provisions across the debt documentation”.
“Close to 75% of Eskom’s outstanding debt is guaranteed by the government of South Africa. Under the majority of Eskom’s debt agreements, a transfer of debt to a new borrower would require creditors’ consent.
“In the case of international bonds, any modifications to the notes to allow substitution would require a consent from noteholders representing not less than 75% of the nominal amount of the notes outstanding,” Moody’s said.
Economist Dawie Roodt said: “The decision to take on part of Eskom’s debt is probably good news as it means that Eskom increases may be a little less than previous hikes, which will be good for the average consumer in South Africa.”
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