Page 8 - AfrElec Week 44 2022

AfrElec ESKOM AfrElec

Eskom bonds continue

rebound following improved

outlook by Moody’s

SOUTH AFRICA THE bonds of South Africa’s power utility loans, and borrowings from development
Eskom continued their rebound on Tuesday financing institutions and export credit agencies.
(November 1) following an improved outlook With up to two-thirds of Eskom’s outstand-
by international credit rating agency Moody’s ing debt being guaranteed by the government,
Investors Service. Moody’s estimates that a transfer of debt to a new
The improved rating comes after Finance borrower would require creditors’ consent.
Minister Enoch Godongwana announced that In the case of its international bonds, any
the government could take over a substantial modifications to allow this kind of changes
portion of the state-owned enterprise’s (SOE) would require consent from noteholders repre-
ZAR 400bn ($22bn) debt. senting not less than 75% of the nominal amount
Moody’s said on Monday that it was changing of the notes outstanding.
its outlook on Eskom’s bonds, which are rated “More generally, the terms of the debt agree-
deep in “junk” territory at Caa1 or Caa2 depend- ments may need to be fundamentally changed
ing on their terms, to “positive from negative,” if the government were to become a borrower,
Reuters reported. given that different representations, warranties
In an accompanying statement, the ratings and obligations may be required in this context,”
agency said the change in the outlook recog- Moody’s said as quoted by Reuters.
nises a commitment by the South Africa govern- “The positive outlook recognizes the com-
ment to address Eskom’s unsustainable capital mitment to address Eskom’s unsustainable
structure. capital structure,” Moody’s said in an emailed
“A partial debt transfer to the government will statement, as cited by Bloomberg. “A partial
improve the company’s balance sheet and reduce debt transfer to the government will improve the
pressure on cash flows through lower interest company’s balance sheet and reduce pressure on
payments,” it added. However, Moody’s warned cash flows through lower interest payments.”
that the transfer process would be complex. Eskom’s ratings could still be downgraded if
Eskom’s bonds have rallied since the govern- concerns appear about the company’s ability to
ment outlined its plans, writes Reuters, with one meet its debt serving obligations, or if reorgani-
of its bonds due for repayment in 2028 reaching sation leads to creditor losses higher than those
its highest level in six weeks. implied in the current ratings, says the ratings
The SOE’s capital structure includes domes- agency.™
tic and international bonds, commercial bank

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