S&P cuts Eskom to BBB-, on watch

Standard & Poor's said it lowered its long-term local and foreign currency ratings on Eskom Holdings SOC Ltd. to BBB- from BBB.

At the same time, the agency lowered its long-term South African national scale rating on the company to zaAA- and affirmed the short-term national scale rating at zaA-1.

The ratings were also placed on CreditWatch with negative implications.

S&P said the downgrade follows June 13 its one-notch downgrade of the Republic of South Africa to BBB+ (local currency) and BBB- (foreign currency).

Because Eskom is a state-owned company, the agency considers it to be a government-related entity and therefore is also lowering the ratings on Eskom by one notch, which is consistent with an "extremely high" likelihood of extraordinary support and a stand-alone credit profile of b- under the criteria for government-related entity.

S&P said the CreditWatch placement reflects its opinion of Eskom's deteriorating financial position owing to rising costs, which have not been fully covered by the energy regulator's determination for the Third Multi-Year Price Determination and negative free cash flows resulting from the still-significant investment program.

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