S&P Global Ratings expects South Africa\u2019s government to fulfil its commitments to investors in Eskom as it finalises a plan to tackle the state-owned utility\u2019s massive debt burden.<\/p>\n
Finance Minister Enoch Godongwana said last month the government may shift between one-third and two-thirds of the power company\u2019s debt of about R400 billion onto its own balance sheet and attach strict conditions to the relief.<\/p>\n
Details, including the quantum and terms of the transfer, are expected to be announced in February\u2019s budget.<\/p>\n
\u201cWe currently assume that the government will fulfil the original obligations to existing investors to avoid a distressed exchange,\u201d S&P Global Ratings said in a statement reviewing South Africa\u2019s junk-rated debt Friday.<\/p>\n
The ratings company considers distressed exchanges, where debt holders accept losses or haircuts out of fear that troubled entities won\u2019t be able to fulfil their original commitments, tantamount to a default.<\/p>\n
S&P assumes the government will take on R250 billion, or almost two-thirds, of Eskom’s debt, equivalent to about 3% of gross domestic product, from 2023. While the higher costs of servicing the sovereign debt will likely be offset by reducing or scrapping planned transfers to Eskom, there\u2019s a risk the utility may need additional support<\/strong> to close liquidity gaps and meet its maintenance and investment plans, S&P said.<\/p>\n S&P affirmed its assessment of the country\u2019s long-term foreign-currency rating at BB-, three notches below investment grade, with a positive outlook. It warned the outlook could be downgraded to stable if the debt transfer \u201csignificantly weakens\u201d the government\u2019s fiscal trajectory without tackling Eskom\u2019s financial and operational shortcomings.<\/p>\n \u201cWe could raise the ratings if growth in economic output and fiscal consolidation continue on a sustained basis, against a backdrop of structural and governance reforms and supportive external sector dynamics,\u201d S&P said.<\/p>\n While last month\u2019s budget update showed an improvement in the trajectory of key fiscal metrics, with government debt seen peaking at 71.4% of GDP in the current fiscal year, the National Treasury didn\u2019t directly account for the impact of Eskom\u2019s relief.<\/p>\n That risk, together with pleas for increased support from other state companies, higher-than-budgeted pay demands by civil servants and calls to expand the social welfare net, means state debt will probably rise to about 79% of GDP by 2025, S&P said.<\/p>\n The ratings company sees Africa\u2019s most industrialized economy expanding 1.9% this year and 1.5% in 2023.<\/p>\n
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