Despite the government’s massive R254 billion debt relief plan for Eskom, the utility will still not be a financially stable company in the future.
This is feedback from global ratings agency S&P Global Ratings, who raised Eskom’s credit rating to a B from a CCC+ last week. This is still five notches below investment grade.
This means Eskom can meet its financial obligations but is highly vulnerable to external shocks.
In addition, S&P Global also upgraded Eskom’s South Africa national scale rating to ‘zaBBB/zaA-2’ from ‘zaB/zaB’.
The credit ratings agency cited the government’s R254 billion debt relief package as key to the electricity company’s credit quality.
“The stable outlook reflects S&P Global’s view that Eskom’s creditworthiness will continue to benefit from explicit and timely support from the South African government,” Eskom said in response to the rating change.
Still, the support package, totalling 3.5% of GDP over three years, is insufficient to address operational challenges at Eskom, which is on course to lose another R23 billion in the 2024 financial year.
S&P clarified that this does not mean Eskom is in good financial health nor that its performance is improving.
“We are clearly saying the support is not enough for it to be a financially sustainable company going forward, especially if it plans to maintain its current role in the energy sector, which we think is looking less and less likely,” associate director Zahabia Gupta said in a webinar last week.
“We recognise the debt relief as having some benefits from a liquidity point of view, but I think one of the key concerns at the moment is that, operationally, Eskom is still in a fragile state.”
According to Gupta, the outcome of the national elections will significantly impact policy consistency and execution, as well as business confidence.
Gupta anticipates the ANC will likely gain a narrow majority or form an alliance with smaller parties, continuing current policies.
“This is what we considered when making our projections,” explained Gupta.
Gupta stated that a potential coalition between the ANC and DA could lead to swifter implementation of reforms.
However, coalitions at the national level are relatively untested in South Africa, and there is limited evidence to suggest they would result in smooth and efficient policymaking.
Gupta also expressed concerns about a possible coalition with the EFF, which could raise uncertainties about the future direction of economic policies.