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Five South African state-owned companies, including electricity company Eskom, are at risk of having their credit ratings downgraded, citing concerns over corporate governance and the political situation in Africa's most industrialized economy.
Credit rating agency Moody's has placed Eskom's Ba1 rating under review due to the “increasing financing challenges faced by businesses.” [the company] within an unfavorable regulatory framework and an evolving political environment. ”
It is also reviewing the ratings of the Southern African Development Bank, the Industrial Development Corporation, the South African Land and Agriculture Development Bank and the South African National Highways Authority.
Moody's decision comes at a sensitive time for South Africa's struggling economy. The country has so far managed to avoid recession, but growth is low and the government continues to battle high unemployment and deep inequality. Both were key factors in the ruling African National Congress' worst electoral performance ever. Local elections in August.
The plan also comes amid a high-stakes power struggle between the Treasury and powerful state institutions, including Eskom. The Treasury has publicly accused Eskom, South Africa's biggest buyer of coal, of obstructing an investigation into its contract with Tegeta Exploration and Resources, which is linked to the powerful Gupta family. Eskom says it has cooperated with Treasury requests and the Guptas deny any wrongdoing.
South Africa's state-owned enterprises are major employers and provide critical infrastructure and services across the country, but they have come under scrutiny in recent years for their poor management and performance. Among other problems, they place a huge strain on government resources, which are already stretched to the limit.
In this year's budget speech, Finance Minister Pravin Gordhan stressed the need for state-owned enterprise reform and promised that further government financial support for state-owned enterprises would depend on “a decisive resolution of governance challenges.”
In August, President Jacob Zuma was appointed to head a new council tasked with overseeing state-owned enterprises, a move that raised questions about the need and motivation for adding a new layer of oversight over companies. .
In recent months, Mr. Gordan Subject of controversial investigation The intervention of special police forces in the tax office has raised concerns that Mr Zuma is planning to remove him and replace him with a more compliant finance minister. Mr Zuma said he fully supported Mr Gordhan but could not intervene in the investigation.
Eskom's chief financial officer Anoj Singh described Moody's review as “disappointing” and said the company's financial position had improved following the restructuring plan.
Moody's said the company's rating could be confirmed if it can demonstrate continued access to liquidity, leaving the regulator's assessment of government support unchanged.
Moody's said the company's rating could be confirmed if it demonstrates continued access to liquidity and authorities assess that government support remains unchanged.
Earlier this month, FutureGrowth Asset Management, a specialist investment firm with approximately R170 billion ($11 billion) in assets under management, announced that it had secured a stake in some of South Africa's largest state-owned companies, including five that are under review by Moody's. announced that it would suspend financing. Concerns about corporate governance and “decision-making structures.”
