Moody\u2019s Investors Service raised its outlook on Eskom\u2019s debt ratings to positive for the first time since 2007 after South African Finance Minister Enoch Godongwana said that the government could take over a substantial portion of the power company\u2019s debt.<\/p>\n
Moody\u2019s boosted the outlook from negative, signalling that the next rating action may now be an upgrade instead of another downgrade.<\/p>\n
It affirmed the utility\u2019s long-term corporate family rating at Caa1, seven levels below investment grade. Eskom\u2019s rating has been on a downward trend since 2008, and the outlook change marks a potential for a change in that course, Joanna Fic, senior vice president at Moody\u2019s, said by email.<\/p>\n
The government expects to shift between one-third and two-thirds of Eskom\u2019s about R400 billion of debt onto its own balance sheet, Godongwana said in the mid-term budget last week. The loss-making state utility that\u2019s been surviving on government guarantees is the biggest known risk to the economy and public finances, the Treasury said.<\/p>\n
\u201cThe positive outlook recognizes the commitment to address Eskom\u2019s unsustainable capital structure,\u201d Moody\u2019s said in an emailed statement on Monday. \u201cA partial debt transfer to the government will improve the company\u2019s balance sheet and reduce pressure on cash flows through lower interest payments.\u201d<\/p>\n
While Godongwana said there will be strict conditions attached to the debt transfer, he provided few details. The swap is also not accounted for in updated fiscal metrics published last week, which show the government\u2019s ratio of debt to gross domestic product will peak two years earlier and at a lower level than expected.<\/p>\n
A partial transfer will be complex, requiring careful management given the diverse creditor base, Moody\u2019s said. Also, the relief won\u2019t itself solve Eskom\u2019s problems that include poor operational performance, a lack of cost-reflective tariffs and overdue liabilities from municipalities, it said.<\/p>\n
Eskom\u2019s ratings could still be downgraded if there are concerns about the company\u2019s ability to meet its debt-serving obligations or if it appeared likely that any reorganization will lead to creditor losses higher than those implied in the current ratings, according to Moody\u2019s.<\/p>\n
The yield on Eskom bonds due in 2028 was 5.2 basis points higher at 8.67% by 17h78 in Johannesburg.<\/p>\n