With 247 days of South Africa being load shedding free, the country’s power utility, Eskom, received more good news yesterday as S&P Global Ratings upgraded the state-owned entity’s credit ratings, moving Eskom’s long-term global scale foreign and local currency ratings from stable to positive.
Eskom’s national scale issuer credit rating also improved from ‘zaBBB’ to ‘zaBBB+’, while its short-term national scale rating of ‘zaA-2’ was reaffirmed.
S&P said, “The stable outlook reflects our view that the group's creditworthiness will continue to benefit from explicit and timely support from the South African government, facilitating a strengthening of Eskom's liquidity position and less risk of default as the debt relief agreement is implemented as stipulated.”
However, the ratings agency warned, “Eskom's operating performance and cash flow will remain under pressure, even though the expected injections will reduce Eskom's liquidity risk. We, therefore, revised our assessment of Eskom's stand-alone credit profile to 'ccc' from 'ccc-', capturing our view of a lower risk of a short-term liquidity crisis and that a default-like scenario is less likely to occur over the next six months.”
Cosatu welcomed S&P’s upgrading of Eskom’s credit rating.
The trade union said, “This is an affirmation of the positive work and excellent turn-around that the government led by the ANC and Eskom has been able to achieve. This is a confirmation of Cosatu’s initiated Eskom Social Compact which put, in place the R253 billion Eskom debt relief package and the ramped-up focus on maintenance.”
“The nation owes a debt of gratitude to the workers of Eskom and municipalities, whose hard work has seen the devastating chapter of load shedding come to an end. This has brought relief to millions and enabled the economy to begin to recover and unemployment starting to fall,” it said.
“Whilst appreciating this achievement and the improved rating outlook which will help make Eskom’s debt repayments and borrowing more affordable, we dare not be complacent as Eskom remains fragile, in particular with regards to rising levels of municipal debt owed to it as well as the crises of cabal theft, crime and corruption,” Cosatu further said.
It has been a long road to recovery from Eskom as the country has seemingly recovered from an energy crisis that shook the economy from rolling power cuts that South Africans had to contend with daily over the past couple of years.
In a statement on Wednesday, Eskom welcomed the news, attributing the upgrade to progress in financial stability bolstered by the R254 billion Eskom Debt Relief Act signed into law in July 2023.
This support package ensures that Eskom can meet its debt servicing and repayment obligations through 2026, significantly reducing liquidity risks.
“This upgrade is a clear indicator of the progress we are making in strengthening Eskom’s financial and operational foundation. It sends a positive message to investors and stakeholders, reinforcing trust in our ability to deliver energy security while driving long-term sustainability,” said Eskom’s Group CEO, Dan Marokane.
The country’s Minister of Electricity, Kgosientsho Ramokgopa, said in a tweet, “Kudos to Eskom on the well-deserved credit rating upgrade by S&P Global Ratings. This positive outlook reflects the collective efforts in strengthening Eskom's financial stability and operational efficiency, sustainable and secure energy future for all South Africans.”
Lead economist at KPMG, Frank Blackmore said, “Efforts to stabilise Eskom’s financial position including the R256bn debt relief have provided the utility with the fiscal space required to allow S&P to upgrade the institution’s risk rating. Although still a long way off from good ratings, this will help the institution by reducing the cost of borrowing and more importantly debt service, freeing up cash to be put toward additional upgrades and maintenance work. Over the medium to longer-term Eskom will need to focus on providing affordable power to guarantee its sustainability because a continuation of large double-digit price increases will result in the shrinkage of its customer base, which is unsustainable.”
Nolan Wapenaar, the head of Fixed Income at Anchor, said, “The upgrade is more of a technical nature where it just follows what S&P did with the sovereign rating a while back. It is not a reflection of what is happening at Eskom itself.”
Earlier this month, S&P also revised South Africa's outlook from stable to positive.
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