Moody’s Puts 5 South African State Firms on Downgrade Review

  • Eskom, DBSA, IDC, Sanral and Land Bank were all put on review
  • Futuregrowth has said it won’t lend to some state-owned firms

Moody’s Investors Service has placed five South African state-owned companies on review for a downgrade due to concerns about governance and the political environment.

The foreign-currency long-term issuer ratings of Eskom Holdings SOC Ltd., the Development Bank of Southern Africa, Industrial Development Corp., the South African National Roads Agency Ltd. and the Land and Agricultural Development Bank were all placed on review for downgrade, the ratings company said in separate statements Wednesday.

Eskom’s rating review reflects the rising funding challenges it faces “in the context of an adverse regulatory framework and an evolving political environment,” Moody’s said. The review for the other three companies “reflects the increased risk of funding and liquidity challenges, following some signals of increased risk aversion by funding counterparties owing to market concerns regarding the governance.”

Eskom will engage with Moody’s to resolve the rating company’s concerns, the utility said in an e-mailed statement.

Yields on Eskom Holdings SOC Ltd.’s $1.25 billion of bonds due February 2025 rose nine basis points to 7.11 percent by 11:56 a.m. on Thursday, the highest in almost two weeks.

Lending Halted

Futuregrowth Asset Management, Africa’s biggest specialist fixed-income money manager, said Aug. 31 it stopped lending money to six of South Africa’s largest state companies, including Eskom, the Land Bank, the IDC, DBSA and Sanral, because of governance concerns. Silkeborg, Denmark-based Jyske Bank A/S said it ceased lending to utility Eskom. Abax Investments (Pty) Ltd., a Cape Town-based investor, said it “significantly reduced” the level of bond purchases in state-owned South African companies over the past three years because of concerns over credit worthiness.

Finance Minister Pravin Gordhan has been at loggerheads with President Jacob Zuma and the management of state companies over board appointments and spending plans. The government announced last month that Zuma will lead a new panel to oversee all state-owned companies to ensure they help develop the country -- a role previously delegated to Gordhan and other ministers.

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