Eskom suffers another downgrade blow

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Ratings agency Fitch has downgraded Eskom’s long-term local currency Issuer Default Rating (IDR) and guaranteed local currency senior unsecured ratings.

Fitch cited weakening liquidity and the company’s uncertain capacity to fulfill its short-term financial commitments as reasons for its decision.

This follows Eskom’s latest announcement that it had placed its Executives, Sean Maritz and Matshela Koko, on permanent suspension.

Eskom’s downgrade by Fitch follows last week’s downgrade by Moody’s, which also cited the utility’s deteriorating liquidity as well as an inability by government to provide direct equity support.

Economist at Econometrix, Dr Azar Jammine, says problems with the company’s executive structure still continue to pose a risk.

“Fitch probably needed to take a decision right now about whether to sustain the old credit rating or move to downgrade it. And although a new board has been elected at Eskom we also know that some leading executives have been suspended. As a consequence there is still uncertainty surrounding whether or not the board on its own can do enough to restructure the utility to become more effective,” he says.

Koko has been placed on suspension based on an additional set of charges. The move follows a recent interim order by the labour court restraining Eskom from terminating Koko’s employment contract. Koko initially faced six charges‚ including that of allegedly failing to declare a conflict of interest around his stepdaughter’s business interests.

“The one at the Labour court is primarily around him, at least after his discussions with the interim CEO. The CEO had given him an option of either voluntarily resigning or being fired. So that one is a separate matter. We now have additional charges on him and that’s where we are at this stage,” Dr Jamaine adds.

Eskom’s chief information officer, Sean Maritz, has been placed on suspension pending an investigation into allegations of impropriety.

The former interim CEO of Eskom faces scrutiny for his role in signing off on a questionable R400 million payment in order to secure a loan from a Chinese Energy company to build or refurbish power stations. The payment was widely viewed as a kickback to secure the $2-billion (or 25-billion rand) loan.

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