Eskom's debt transfer to SA’s government credit neutral - Moody's

A Moody's sign on the 7 World Trade Center tower is photographed in New York, file. [Photo: Reuters]
JOHANNESBURG - Power utility Eskom’s request for government to take up 100 billion rand ($7 billion) of its debt could cause the country’s overall debt ratio to jump two percentage points from the current 55.8 percent, ratings agency Moody’s said on Friday.

Moody’s, the last of the top three ratings firms to still rate Pretoria’s debt at investment grade, said in a research note dated December 12 that granting Eskom’s request would have a neutral credit impact and was unlikely to accelerate the firm’s long-promised turn-around strategy.

Last week, the cash-strapped power firm said it wanted the government to take on 100 billion rand of its total borrowings of 420 billion rand, a move President Cyril Ramaphosa on Thursday said was not an option as it would cause the country’s debt to spiral.

“The transfer will increase South Africa’s debt/GDP ratio by around two percentage points from the 55.8 percent envisioned for fiscal year 2019,” Moody’s said, noting that it does not currently include the firm’s government guaranteed debt in the overall measure of debt.

“If the debt transfer grants further measures like efficiency savings and/or tariff increases requested by the company in October that reduce this contingent liability risk, the overall credit impact of the debt transfer could be neutral,” Moody’s said.

The agency however said this was unlikely as Eskom had already delayed its turnaround plan on numerous occasions, and that the utility was unlikely to implement it before general elections due mid-2019.

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EskomMoodyPresident Cyril RamaphosaSouth Africa