Staff Writer
Fitch Ratings has upgraded the long-term credit rating of Eskom Holdings SOC Ltd to ‘B+’ from ‘B’, citing stronger support from the South African government following the recent upgrade of South Africa’s sovereign credit rating.
The ratings agency announced that Eskom’s long-term Issuer Default Rating (IDR) had been raised to ‘B+’ with a Stable Outlook.
Fitch also upgraded Eskom’s senior unsecured debt rating to ‘B+’ from ‘B’, while its government-guaranteed senior unsecured debt was lifted to ‘BB’ from ‘BB-‘.
NamPower imports 100 MW of firm power from Eskom under a bilateral agreement, with an additional non-firm arrangement of up to 300 MW.
According to Fitch, the upgrade follows its decision on 5 June to raise South Africa’s sovereign rating, reflecting the close relationship between the state-owned power utility and the South African government.
Fitch said Eskom’s ratings continue to be driven largely by its status as a government-related entity.
Under the agency’s Government-Related Entities rating criteria, Eskom benefits from strong state support through government oversight, policy importance, a history of support and the potential impact that any financial distress at the utility could have on the sovereign.
The agency assessed all key support factors as “strong”, resulting in a support score of 30.
Combined with Eskom’s standalone credit profile of ‘ccc+’, this places the utility’s rating two notches below South Africa’s sovereign rating.
Eskom remains South Africa’s wholly state-owned electricity utility and retains a monopoly position in the generation, transmission and distribution of power to domestic and international customers.
Despite the upgrade, Fitch highlighted several risks that could place pressure on Eskom’s ratings in the future.
These include any weakening of ties between the utility and the government, a downgrade of South Africa’s sovereign rating, or deterioration in Eskom’s liquidity and access to funding resulting from weaker operational performance.
Conversely, stronger links with the sovereign, an improvement in South Africa’s credit profile, or sustained operational improvements that enhance funding access and working capital management could support future positive rating actions.
Fitch also drew attention to Eskom’s long-term climate exposure.
The utility received a Climate Vulnerability Signal score of 74 for 2035, largely because about 80% of its electricity generation capacity remains dependent on coal-fired power stations.
However, Fitch said these climate-related risks currently have a limited impact on Eskom’s credit rating because restrictions on major new generation investments reduce immediate exposure.
The agency expects the gradual expansion of independent power producers to help reduce the country’s reliance on coal-generated electricity over time.
On environmental, social and governance (ESG) considerations, Fitch assigned Eskom an ESG Relevance Score of ‘4’ for governance structure and financial transparency.
The agency noted that past governance failures affected access to capital markets and weakened liquidity, while qualified audit opinions over the past four financial years and delays in publishing financial results have also weighed on the utility’s credit profile.
