By Lehlohonolo Lehana.
State-owned power company Eskom Holdings SOC Ltd was upgraded two notches by S&P Global Ratings, which cited the government’s substantial financial support plans.
The company’s credit rating was lifted to B, five levels into junk, from CCC+ by S&P on Friday, according to a statement.
Eskom acting CEO Calib Cassim said, “Eskom welcomes the decision to upgrade the company’s credit rating by S&P Global. We continue to work with key stakeholders, particularly shareholder ministries, as we implement our turnaround plan with a focus on key strategic objectives which include operations and financial recovery; people, culture and ethics, and legal separation of the business.”
The upgrade, a considerable shift towards better creditworthiness and financial stability, comes in the wake of substantial financial support plans outlined by the government.
Eskom, grappling with operational and financial challenges for some time, finds itself on firmer footing with this positive development.
The decision by S&P to upgrade Eskom’s rating reflects the government’s commitment to ensuring the utility’s sustainability. The government’s financial support package, amounting to R254 billion ($13.5 billion), is expected to cover Eskom’s debt obligations for the current and the following two fiscal years.
The ‘B’ rating, while still five levels into junk, is nonetheless a significant improvement from the previous ‘CCC+’ rating.
The upgrade by S&P is a pertinent development as credit ratings play a critical role in a country’s ability to borrow money on international markets and the interest rates it must pay. An improvement in Eskom’s credit rating could potentially lower borrowing costs and instill greater investor confidence in South Africa’s energy sector.
However, it’s worth noting that Eskom’s operating performance is expected to remain under pressure due to weak operating efficiency, despite expected injections to reduce liquidity risk.