The South African government’s decision to inject more capital into Eskom Holdings SOC Ltd. will help the utility stabilize finances and ultimately improve its credit rating, acting Chief Executive Officer Brian Molefe said.
The government is in the process of selling state assets to fund a 23 billion-rand ($1.9 billion) bailout for Eskom, while lawmakers are processing laws required to convert a 60 billion-rand subordinated state loan to the utility into equity. Eskom said the injection will lower its gearing ratio to 67 percent from 75 percent. It plans to raise 55 billion rand through debt in the year through March 2016.
“Conversion of the subordinated loan is critical to Eskom as it will improve the balance sheet position, improve financial ratios that affect the position with ratings agencies and free up additional borrowing capacity,” Molefe told lawmakers in Cape Town on Friday.
Eskom has struggled to finance new generating capacity after the electricity regulator granted it lower tariff increases than requested and has been forced to implement rolling blackouts because its aging plants can’t generate sufficient power. Moody’s Investors Service cut its rating for Eskom to non-investment grade, or junk, on Nov. 7 and Standard & Poor’s followed suit in March.
While the conversion of the loan, granted in December 2008 and subordinated to Eskom’s senior debt, shows the government’s commitment to support the utility, it won’t have an immediate material impact on the ratings, Molefe said.
The government moved Molefe from state transport company Transnet SOC Ltd. to turn Eskom around. Molefe said while he hadn’t been asked to become the permanent CEO, he’s prepared to stay on and his priority is to ensure the company’s financial stability.
Technical faults at the Cahora Bassa hydropower plant in Mozambique have been fixed, helping alleviate pressure on the electricity grid, Molefe said. He expects the first two units of Eskom’s 1,332-megawatt Ingula pumped-storage power project are due to come into operation by March.