Eskom urgently needs a plan to turn profitable or South Africa’s state-owned utility will collapse under mounting debt, according to credit agency Moody’s Investors Service.
The generator of more than 90% of the nation’s electricity reported a record annual loss of R20.7-billion last week and is regarded as the biggest threat to South Africa’s economy. The government is giving Eskom a R128-billion bailout over the next three years to keep it afloat.
“The company’s operational and financial performance has deteriorated, indicating the extent of the challenges facing Eskom in meeting its debt obligations absent government support,” Moody’s said in an e-mailed report. The rand declined as much as 0.6% against the dollar after it was released.
South Africa’s cash injections through to 2021 “cannot do more than stabilise the company’s debt burden, pending development of a longer-term solution for the company”, Moody’s said.
The government has faced criticism from the country’s biggest business lobby over its handling of the crisis at Eskom, which has some R440-billion of debt. Business Unity South Africa expressed frustration with delays in seeking a new CEO and the appointment of Freeman Nomvalo as chief restructuring officer.
The ratings agency also said the department of public enterprises intends to publish an outline of the government’s approach to unbundling the utility in mid-September, although it could be delayed.
Moody’s assesses South Africa’s debt at Baa3, the lowest investment level, while Fitch Ratings and S&P Global Ratings have downgraded the country to junk.
“In our assessment of Eskom, we continue to recognise the strategic importance of the company to the economy and factor in the ongoing strong commitment from the government of South Africa,” Moody’s said. — Reported by Paul Burkhardt, (c) 2019 Bloomberg LP