Lights dim as Moody’s responds to SONA


Lights dim as Moody’s responds to SONA

Published Date: 2019-02-12 | Source: Stephen Gunnion | Author: Stephen Gunnion

Lights dim as Moody’s responds to SONA

The ratings agency welcomed splitting Eskom into three but said measures had to be taken to stabilise its financial health on a sustainable basis.

Eskom moved to stage 4 load shedding yesterday as ratings agency Moody's said a plan to address issues at the power utility fell short. Responding to President Cyril Ramaphosa's State of the Nation Address on Thursday evening, Moody's welcomed his proposal to separate Eskom into three distinct entities covering generation, transmission and distribution, saying it would make the group more transparent. However, it said unless financial support to the utility was accompanied by measures that provided "durable stability" to its financial health, the move would be credit negative.

The ratings agency said Eskom continued to represent a significant risk to the government's fiscal strength. Eskom's debt sat at R419 billion last September, equal to 8.5% of 2018 GPD. More than half of that is guaranteed by the government.

The rand weakened to R13.77 to the US dollar from R13.64 on Friday evening. It was also softer against the euro and the pound.

In a note to clients, Investec chief economist Annabel Bishop said after brief strength in January, the realities of next week's National Budget and Eskom's woes had come home to roost for the rand, along with Moody's warning. A credit rating downgrade by Moody's would have a substantial impact on the currency, Bishop said.

Moody's next ratings decision is due on 29 March, a month after the Budget. It currently has SA on a stable outlook and would probably first change the outlook to negative before reducing the rating to sub-investment grade.

Eskom was forced to revert to stage 4 load shedding yesterday after it lost six additional generating units which put additional strain on the system. Stage 4 calls for 4,000 megawatts of power to be rotationally load shed nationally at a tiger period. It's used as a measure of last resort to protect the power system and prevent a national blackout.

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