Moody's: SA's Eskom bail out plan credit negative

While the government may try absorb some the costs of the plan to help rescue the cash-strapped power utility in the medium-term budget in October, the “room to maneuver is extremely constrained,” Moody’s said in a report on its website. The rand weakened.“The lack of a strategy to return Eskom to a more stable financial situation that would reduce the need for government support exacerbates the problem for the government,” it said.

Finance Minister Tito Mboweni this week announced a second multi-billion rand bailout for Eskom within five months, aid that may force the cash-strapped government to increase borrowing and taxes. The R59bn cash injection over the next two years adds to the three-year, R69 bn bailout unveiled in the budget in February.

Moody’s is the only major credit-rating company that still assesses South Africa’s debt at investment grade.

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