Moody's rates Eskom notes A2

Moody's Investors Service said it assigned a provisional A2 rating with stable outlook to South Africa-based Eskom Holdings Ltd.'s roughly €500 million proposed issue of euro-denominated fixed-rated notes due 2013 for the primary purpose of funding capital investments in Eskom's transmission and generation assets.

The A2 rating for Eskom's proposed notes pierces South Africa's country ceiling of Baa1, reflecting Eskom's A1 local currency senior unsecured debt rating, South Africa's mid-range moratorium risk, a similar mid-range risk for Eskom as an electric utility affected by the moratorium and a medium level of default dependence.

Moody's said the ratings are underpinned by Eskom's dominance in South Africa's electricity industry. Despite the introduction of independent power producers to create new capacity, Eskom remains the de facto national generator of last resort, with responsibility to provide additional generation capacity.

The agency noted that the proposed bond will not benefit from the first charge against all revenues and assets of Eskom that applies to existing Eskom debt. Due to high support from the South African government, Moody's predicted that the recovery potential for unsecured creditors under the new bond will not be impacted by the existence of proportionally large amounts of secured debt.

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