Moody Says that Extra Bailout Won’t Bring an End to Eskom Challenges

South Africa is providing extra financial support to Eskom to the tune of R59 billion, which is credit positive for the company, however, according to Moody’s Investors Service, the debt outlook for Eskom will depend on whether it’s able to curb cost growth. 

Moody analysts have said that they expect Eskom’s debt to largely stabilise due to government capital transfers in financial years 2020-21. The future debt trajectory of the company, however, will depend on if it’s able to contain operating costs that are likely to remain under upward pressure and capital spending. 

Eskom is currently seen as the biggest threat to the nations’ economy, but will receive R26 billion of the money this financial year and will receive R33 billion in 2020-21. This comes just five months after Tito Mboweni, finance minister, announced a three-year cash injection of R69 billion. 

Currently, Eskom has over R440 billion of debt and this month it’s expected that another annual loss is to be reported due to cost overruns on new plants as well as unreliable generation from old coal facilities that caused power outages in the first quarter. 

Eskom provides 95% of the nation’s power and the government has vowed to help as the disastrous finances of the company have become clear. 

The sustainability and longer-term evolution of Eskom’s capital structure will be dependent on a plan being in place for its turnaround, but this is yet still to be created said, Moody. At the moment, Moody is the only credit rating company that is still seeing South Africa’s debt as investment grade. However, the extra bailout doesn’t have an accompanying plan that will make Eskom more sustainable, which is then credit-negative for the nation. 

The assessment by Fitch Ratings cut its position of South Africa’s debt to negative, which means that there is a risk the nation will drop further into sub-investment. The reason for this was cited as the additional support for Eskom. 

Article Source: https://www.moneyweb.co.za/news/south-africa/extra-bailout-wont-end-eskoms-challenges-moodys-says/