South Africa woke up this morning to find itself in the worst possible position - faced by a power utility that according to reports was about to post its worst financial results since it was established in 1923 and the news that capital investor outflows had reached a record high of $4.8 billion.
The net sum to date of forex withdrawn from South African bonds and equities this year is the highest it’s been since 1998, and is widely seen as an indication of expectations abroad that Moody’s Investors Service is primed to downgrade South Africa’s sovereign debt to sub-investment level.
Such a move will herald the loss of South Africa’s last, brittle stand as a country with an above-grade investment rating.
Moody’s peer agencies, S&P Global and Fitch, downgraded the country’s sovereign rating to “junk” in 2017, and since then it’s been a struggle for the government to protect its Moody’s perch.
Making matters worse is the spectre of Eskom and its fiscally fleecing debt hole of R440 billion, an amount so onerous to service in interest payments alone that it’s pulling further and further apart from government’s ability to honour its debt commitments.
So when it was announced last week that parliament had approved a bailout package of R59 billion for the parastatal, up from an earlier lifeline pledge of R23 billion, it sent immediate ripples across the ratings landscape.
As a result Fitch downgraded the country’s outlook to negative and Moody’s warned that the government’s decision to more than double Eskom’s bailout was “credit negative”.
But that’s not all.
Here’s the worst news of all: by the time you read this the state-owned company will most likely have announced its annual financial results - and according to predictions, newly appointed CEO Jabu Mabuza will have the unenviable task of telling the country that Eskom has recorded a loss of R25 billion.
That is R10 billion more than was estimated during the utility’s interim results.
It is against this backdrop of a badly run power provider that for too long was used as a portal for grand-scale pilferage at the hands of Jacob Zuma and his government’s Gupta connections that South Africa appears to be on the eve of losing its last above-grade investment rating.
Pray it doesn’t happen. Pray hard!
