Fitch Ratings has upgraded Eskom’s long-term issuer default rating to B+ from B, with a stable outlook, strengthening the utility’s credit standing as it continues to seek funding for its turnaround and capital investment programme.
The agency also upgraded Eskom’s senior unsecured debt to B+ from B while the recovery rating remained unchanged at RR4. Eskom’s guaranteed senior unsecured debt was upgraded to BB from BB-.
The rating action follows Fitch’s recent upgrade of South Africa’s sovereign credit rating. Fitch upgraded South Africa’s long-term foreign and local currency credit ratings to BB from BB- on June 5, maintaining a stable outlook.
“Eskom’s ratings reflect strong links to the South African sovereign under our latest Government-Related Entities (GRE) Rating Criteria. Fitch assesses all support factors, including decision-making and oversight, precedent of support, preservation of government policy role and contagion risk, as ‘strong’ under our GRE criteria,” Fitch Ratings said.
Eskom’s rating was one notch below the sovereign rating, in line with its government-related entities criteria, the agency added.
The outlook for Eskom remains closely linked to South Africa’s sovereign credit profile and the utility’s relationship with government.
The agency said factors that could lead to a downgrade include a “major adverse change in Eskom’s operational structure, resulting in diminishing links with the sovereign” or negative rating action on the sovereign. Positive rating action could follow stronger links with the sovereign under the GRE criteria or positive rating action on the sovereign, the agency added.
The upgrade is material for Eskom’s funding position. Eskom said it remains focused on “strengthening operational performance, improving liquidity and access to funding, and delivering on its turnaround plan in support of long-term financial sustainability”.
Eskom Group Chief Executive Dan Marokane said: “Eskom and, in turn, South Africa now has a stable electricity platform to operate and grow from, advancing grid stability, market liberalisation and the integration of renewable energy.”
