Fitch: Strong sovereign support for eskom despite suspension of key executives

Fitch Ratings continues to assess the links between the government of South Africa (BBB+/BBB/Negative) and its utility company Eskom Holdings (SOC) Ltd as strong following the suspension of the company's key executives on 12 March 2015.

We believe the significant support provided by the government to the company is not questioned by this board decision and that it continues to underpin Eskom's ratings at the sovereign rating level. Eskom's Long-term Local-Currency Issuer Default Rating is 'BBB+' with Negative Outlook, eight notches above its standalone profile of 'B-'.

However, the unexpected board decision adds uncertainty to existing governance limitations and may affect near-term operations and access to external funding that is needed on a continuous basis. This is despite the board's intention to tackle challenges facing the company more effectively. We believe that fundamentally the issues are largely caused by long-term under-investment, tariff control and cost inefficiency, which will continue to weigh on the quality of service and Eskom's credit profile.