S&P Keeps Eskom at Investment Grade After State’s Support Plan

Standard & Poor’s kept Eskom Holdings SOC Ltd.’s credit rating at investment grade and removed the threat of an imminent downgrade after South Africa’s government announced plans to support the state-owned power company.

“We believe that the plan will support Eskom’s liquidity and credit metrics in the near term, and demonstrates our assessment of the ‘extremely high’ likelihood that the government would provide extraordinary support, if needed,” the ratings company said in a statement today.

S&P put Eskom’s BBB- rating on negative CreditWatch in June, giving it a 50 percent chance of a downgrade to junk. A drop to a speculative level would raise borrowing costs for the company at a time when it’s building new and upgrading old plants to ward off power outages in Africa’s second-largest economy. Fitch Ratings affirmed its assessment at BBB+ last month, while Moody’s Investors Service cut it to junk on Nov. 7.

S&P kept a negative outlook on the rating, saying it wanted to see the support package carried out and that other actions may need to be taken to help the company.

Nhlanhla Nene, South Africa’s finance minister, said on Oct. 22 that stakes in listed and unlisted companies and real estate may be sold off to help Eskom plug a 225 billion-rand ($19.9 billion) funding gap. Eskom would also borrow more from capital markets and may convert existing subordinated debt into equity, he said.

Yields on Eskom’s dollar bonds due in January 2021 fell three basis points to 5.42 percent at 3:45 p.m. in Johannesburg.

Eskom, which supplies 95 percent of the country’s electricity, warned of outages last week after a coal-storage silo at Majuba, its second-biggest plant, collapsed. Typically a third of the utility’s installed capacity of 42,000 megawatts from aging facilities is undergoing maintenance at any one time.

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