Extra bailout won’t end Eskom’s challenges, Moody’s says

The extra R59 billion of financial support South Africa is providing cash-strapped power utility Eskom is credit-positive for the company, but its debt outlook will depend on whether it can curb cost growth, Moody’s Investors Service said.

Read: Eskom gets bailout funding. Now it needs a rescue plan

“We currently expect Eskom’s debt to broadly stabilise as a result of the government capital transfers in financial years 2020-21,” Moody’s analysts including Joanna Fic said in a statement on its website Friday. “However, the company’s future debt trajectory will depend on its ability to contain operating costs, which are likely to remain under upwards pressure, and capital spending.”

The electricity company, which is seen as the biggest threat to the nation’s economy, will get R26 billion of the money this financial year and R33 billion in 2020-21. That’s only five months after finance minister Tito Mboweni announced a three-year R69 billion cash injection for the utility.

Eskom is struggling under more than R440 billion of debt and expects to report another annual loss this month because of cost overruns on new plants and unreliable generation from ageing coal facilities that resulted in power outages in the first quarter. The government has vowed to help the company that provides about 95% of the nation’s power as the dire state of its finances have became clearer.

The longer-term evolution and sustainability to Eskom’s capital structure will depend on a strategic turnaround plan that’s yet to be devised, said Moody’s, which is the only major credit-rating company that still assesses South Africa’s debt as investment grade. It called the extra bailout without an accompanying plan to make the utility more sustainable credit-negative for the nation.

Earlier, Fitch Ratings cut the outlook on its assessment of South Africa’s debt to negative, with the nation risking a drop deeper into sub-investment territory. It cited the additional support for Eskom as the reason for the move.

Read: Fitch affirms South Africa credit rating but downgrades outlook

© 2019 Bloomberg L.P.