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Standard & Poor’s Ratings Services has raised its long-term foreign currency ratings on three South Africa-based infrastructure companies Transnet Ltd, Rand Water (RW), and Eskom Holdings Ltd to ‘BBB’ from ‘BBB-‘. The foreign currency outlook on all three companies is stable.

At the same time, the long-term local currency ratings on RW were raised to ‘A’ from ‘A-‘. The local currency outlook on RW is stable. In addition, the ‘A-‘ local currency ratings on Eskom and Transnet were affirmed. The local currency outlook on Eskom is positive, and that on Transnet is stable.

These rating actions follow the upgrade, on May 7, of Standard & Poor’s long-term foreign currency ratings on the Republic of South Africa to ‘BBB’ from ‘BBB-‘, and of its local currency ratings to ‘A/A-1’ from ‘A-/A-2’. The outlook on South Africa is stable.

The ratings on water utility RW reflect its strategic position as a statutory corporation and the monopoly provider of bulk water distribution to the Gauteng region, the economic heartland of South Africa. Offsetting these strengths are customer concentration (a large portion of RW’s revenues are derived from only a few municipalities), exposure to drought conditions and volume risk, and low interest-coverage levels.
The positive local currency outlook on electricity utility Eskom reflects the expectation that the company will continue to improve its financial profile in the short term while maintaining its dominant position in electricity generation and transmission activities in

  • South Africa . The potential for raising the local currency ratings on Eskom will, however, depend on a continued demonstration of regulatory and state support. In the longer term, the ratings on Eskom could be affected by corporate restructuring and the potential spin-off of its distribution business if compensation does not adequately offset the resulting deterioration in the company’s business risk profile and the expectation that state support in its current form will ultimately be modified.

 

The stable local currency outlook on transport conglomerate Transnet is based on Standard & Poor’s expectation that the company will retain a dominant position in the country’s transportation sector, remain owner of its key cashflow-contributing activities, and continue to act as a key element in the economic development of South Africa . A weakening in the company’s relationship with its owner, or a rating action on the owner, could put pressure on the local currency ratings. Any upward rating movement is unlikely until Transnet’s financial profile improves significantly.