Eskom Says Timing of Moody’s Outlook Review ‘Fitting’

Eskom Holdings Ltd., South Africa’s state-owned power utility, said the timing of a decision by Moody’s Investors Service Inc. to raise the outlook on its bonds was “fitting” in light of the government’s decision to double loan guarantees.

Moody’s said in an e-mailed statement yesterday that it was changing the outlook on Eskom’s Baa2-rated senior unsecured bonds to “stable” from “negative” to reflect “a number of measures” taken over the past few months to strengthen the company.

“Eskom views this rating amendment favorably and views it as a further enabler to its commitment to delivering the much-needed capacity whilst maintaining the financial sustainability of the company,” the Johannesburg-based utility said in a e-mailed statement today.

The yield on Eskom’s benchmark 7.5 percent bond due September 2033 fell almost 3 basis points, or 0.03 percentage point, to 9 percent at 10:13 a.m. in Johannesburg, according to data compiled by Bloomberg.

Eskom, which supplies about 95 percent of South Africa’s electricity, is spending about 485 billion rand ($70 billion) to prevent a repeat of five days of blackouts that brought some of the country’s biggest gold and platinum mines to a standstill in January 2008.

Double Guarantees

On Oct. 28, the government said it will almost double loan guarantees for Eskom to 350 billion rand to fund expansion, and on Nov. 11 the Cabinet said it may inject a further 20 billion into the company over the three fiscal years through April 2014.

“We have had strong support from the government,” Chief Executive Officer Brian Dames said in a Nov. 29 interview in Cape Town. “We have had great clarity. There is nothing that impacts on the certainty of our expansion program.”

Eskom’s financial prospects also improved after regulators allowed it to raise tariffs 25 percent this year and 26 percent in each of the following two years. On Nov. 23, the utility said net income jumped to 9.5 billion rand in the six months through September, from 1.1 billion a year earlier, as sales grew 33 percent.

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