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More junk: Fitch pushes Eskom deeper into the scrap hea...

Business Maverick

DOWNGRADE

More junk: Fitch pushes Eskom deeper into the scrap heap 

(Illustrative image: Daily Maverick)

In the wake of the downgrade action it took last week on South Africa's credit rating – taking it further into junk territory – it is no surprise that Fitch has now also downgraded Eskom. Ratings agencies simply do not see any light at the end of Eskom's debt tunnel, especially in the face of government policy inertia. 

Fitch noted in a statement that Eskom’s turnaround plan was “progressing slowly”. 

This is a persistent problem: the government simply cannot get the ball rolling on the reforms it needs to implement to improve its finances and the economy.  

“Eskom’s plan to create separate business divisions is progressing gradually and the company expects the separation of generation, transmission and distribution entities will enable them to focus on their respective business, including lowering carbon intensity as well as financing activities such as accessing Green financing. 

“However, there is no clarity on the final credit linkages between the three entities and the parent company once this unbundling is complete,” Fitch said. 

This is another recurring theme: the lack of clarity. That translates into “uncertainty”, which is hardly going to entice lenders to open their wallets. Or investors for that matter. 

On that note, Fitch said: “A well-defined and executed turnaround strategy” could lead to an upgrade. Big hint to the government: this will light the way. 

On the other hand, Fitch said: “A failure to implement the long-term turnaround strategy” could lead to another downgrade. Another big hint: this is how the lights go out. 

So it’s pretty clear that a lot is riding on Eskom’s ability to separate itself into different entities. 

Eskom’s debt is over R480-billion – a crippling amount – and its battle to keep its ageing fleet of power stations chugging along is the biggest threat to South Africa’s fragile economy. 

The government needs to heed these warnings and take decisive action. DM/BM

 

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  • OK wonderful. Do you think that maybe you could tell us what the extent of the downgrade is? Is it from AAA to ZZZ? Misleading headlines with NO information are a waste of everyone’s time.

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