S& P Global Ratings has downgraded power producer Eskom’s credit rating and kept its outlook negative.

The rating agency said Eskom was facing financial pressure as a result of an ongoing court case against South Africa’s energy regulator.

It also said Eskom’s government guarantee of R350-billion was due to expire in March and no decision had been made to extend it.

“We are also concerned that Eskom’s capital structure and free cash flow remain at unsustainable levels‚ even if its liquidity position and operating performance should show some improvement during the current fiscal year‚” S& P said.

It lowered the rating to BB.

Emerging market economist at Nomura Peter Attard Montalto said the move seemed major ahead of next week’s announcement on the country’s sovereign rating by the agency. He said agencies looked at state-owned companies “early” when they were key to a country’s rating and its balance sheet.

Eskom responded to the downgrade by saying it regretted the decision because it was confident the current process to extend the guarantee would be addressed.

— BusinessLIVE