Eskom shrugs off rating downgrade

Eskom has noted the downgrading of its credit rating by the Fitch ratings agency, the company said on Friday.

“Eskom takes note of the action by Fitch to revise its ratings outlook of Eskom to negative from stable,” the company said in a statement.

“The ratings agency has also affirmed the long-term local currency Issuer Default Ratings (IDR) of BBB+.”

Given the government’s strong support of Eskom, the downgrade was a result of South Africa’s outlook being downgraded to negative from stable by the agency last week.

“Fitch only formally rates the local currency and national credit ratings of Eskom,” the company said.

Eskom finance director Tsholofelo Molefe said: “Eskom’s rating is closely linked to that of government. We continue to target the stability of Eskom’s credit profile in order to efficiently fund the infrastructure investment programme.”

Last Friday, when Fitch revised the outlook on South Africa, it affirmed its credit rating at BBB, near the bottom of the investment-grade scale.

The ratings agency said the outlook revision was partly due to a strike at platinum mines, the country’s longest-ever mining stoppages that began on January 23.

Fitch said South Africa’s outlook for growth deteriorated after a 0.6 percent contraction in the first quarter of this year, and it revised its 2014 GDP growth forecast down to 1.7 percent, from the 2.8 percent it issued during the last country review in December 2013.

The agency said at the time the government faced “a challenging task to raise the country’s growth rate and improve social conditions, which has been made more difficult by the weaker growth performance and deteriorating trends in governance and corruption”.

“This will require an acceleration of structural reforms,” it said.

The agency also voiced concern over President Jacob Zuma’s new Cabinet, appointed after general elections last month returned his African National Congress to power and secured him a second term in office.

“In Fitch’s view, the track record of some key ministerial appointments and shortcomings in administrative capacity mean this is subject to downside risks.”

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Eskom shrugs off rating downgrade