July 6 – Fitch Ratings has affirmed Eskom Holdings SOC Ltd’s (Eskom)
Long-term local currency Issuer Default Rating (IDR) at ‘A’, its Long-term
National rating at ‘AAA(zaf)’ and Short-term National rating at ‘F1+(zaf)’. The
Outlook on the local currency IDR is Negative, while the Outlook on the National
Long-term Rating is Stable.
The Negative Outlook on the IDR reflects Fitch’s alignment of Eskom’s ratings
with those of its 100% shareholder, the Republic of South Africa (Long-term
local currency IDR ‘A’ and Foreign Currency IDR ‘BBB+, both with Negative
Outlooks) in accordance with Fitch’s ‘Parent and Subsidiary Rating Linkage’
criteria. Fitch considers the continued levels of explicit and implicit
government support received over FY09 to FY12, in line with the agency’s
expectations, and notes that further support is expected, should the need arise
in future.
South Africa’s electricity tariffs are expected to continue tracking towards
cost reflectivity over the next five years, despite the last year of the second
multi-year price determination (MYPD2) increase having been reduced to 16% from
25% in 2012. Eskom’s ratings are strongly supported by both tangible and
intangible government support, which reflects Eskom’s strategic importance to
both the country’s energy needs and the broader South African economy.
Eskom’s financial profile is expected to continue to gradually improve over the
medium to long-term, and revenue and cash generation is expected to be boosted
by higher tariffs and ongoing operational cost reductions. In addition, greater
transparency from regulators and the government should support the normalisation
of the stand-alone profile at levels commensurate with an international
investment-grade rating over the medium term.
At end-March 2012 (FYE12), Eskom’s revenues increased 25.5% to ZAR114,760m, from
ZAR91.4bn in FY11. The increase was driven primarily by higher electricity
tariffs, while the EBITDA margin remained reasonably stable at around 30%,
reflecting a sharp rise in primary fuel costs (notably related to coal). Eskom
is also in the process of rolling out its vast debt-funded capital expenditure
programme and has secured the funding of over 77% of the required debt to meet
its committed investment obligations to 2017.
Any sovereign rating action would result in the same rating action on Eskom,
provided that all support-driven factors remain unchanged.
Eskom is the monopoly electricity generation and transmission company in South
Africa, responsible for providing over 95% of South Africa’s electricity needs,
and generates over 80% of the South African Power Pool’s (SAPP) total
electricity generation supply.
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