R20bn CDB boost for Eskom

A wel­come fi­nan­cial boost for the power util­ity

The Star Early Edition - - BUSINESS REPORT - Ziyanda Mbolekwa

ESKOM yes­ter­day signed a $1.5 bil­lion (R20bn) loan agree­ment with the China De­vel­op­ment Bank (CDB) to as­sist it with the fi­nanc­ing of the Medupi power sta­tion in Lepha­lale, Lim­popo.

The deal comes as the power util­ity bat­tles a spate of prob­lems that has seen two of its most se­nior lead­ers leave and a down­grade by rat­ings agen­cies.

Eskom act­ing group chief ex­ec­u­tive Johnny Dladla yes­ter­day said that the deal with one of the world’s big­gest lenders would go a long way in mit­i­gat­ing its liq­uid­ity risk and would boost in­vestor con­fi­dence on its bonds.

Dladla said the deal also sym­bol­ised Eskom’s fi­nan­cial sta­bil­ity and that it was still able to ser­vice its loans, de­spite ad­verse mar­ket con­di­tions in South Africa and the world.

“This is more than just an ad­di­tional fund­ing for the Medupi project, it sym­bol­ises a part­ner­ship for a long sus­tain­able jour­ney of growth and de­vel­op­ment for South Africa,” Dladla said. “This loan will aide us in en­sur­ing that we com­plete the Medupi project and en­sure se­cu­rity of en­ergy and sup­ply,”

Last month in­ter­na­tional rat­ings agency Moody’s cut Eskom’s rat­ing to near junk, cit­ing gover­nance weak­nesses and con­cerns that its op­er­at­ing per­for­mance was un­sta­ble. It re­duced Eskom’s rat­ing from Ba1 to Ba2, on the same day that board chair­per­son Ben Ngubane re­signed.

Eskom chief fi­nan­cial of­fi­cer Anoj Singh said the deal sig­ni­fied in­ter­na­tional in­vestor’s ap­petite for its bonds. Singh said while the in­ter­est rate agreed upon re­mained con­fi­den­tial, the loan would be payable over a 15-year pe­riod and have a five-year draw down.

He said Eskom would be go­ing ag­gres­sively on the bond mar­ket to raise fund for its fi­nan­cial tar­gets.

“The in­ter­est rate at which we have set­tled the fa­cil­ity agree­ment is the com­pet­i­tive rate; we have bench­marked it against the po­ten­tial in­sur­ance in global cap­i­tal mar­ket, so it is rel­a­tively ap­pro­pri­ately priced,” Singh said.

“Eskom bal­ance sheet is around R330 to R350bn on the govern­ment guar­an­tee util­i­sa­tion, we have R350bn avail­able to us and through the min­is­ter of fi­nance we guar­an­tee that the frame­work agree­ment has been ex­tended un­til 2023.”

Eskom is the se­cond ma­jor state-owned en­ter­prise to re­ceive the CDB loan fa­cil­ity. In 2015, the bank signed a R30bn loan agree­ment to fund Transnet’s long-term pro­gramme aimed at re­new­ing its age­ing lo­co­mo­tives.

Transnet said at the time that the re­pay­ment term of the loan would stretch to 15 years, with a grace pe­riod of four-and-a-half years, while the lo­co­mo­tives were un­der con­struc­tion.

CDB deputy di­rec­tor-gen­eral man­ager Li Gang said the loan was ex­tended to solve Eskom’s liq­uid­ity prob­lems. Gang said it also marked the long-term sus­tained, sta­ble and healthy re­la­tion­ship be­tween China and Africa. He said CDB had thus far dis­pensed $4.2bn in loan fa­cil­i­ties to South Africa.

“We be­lieve as long as Eskom does ev­ery­thing well, and ful­fils its com­mit­ment to the com­mu­nity and the people and en­sures that the goals of the coun­try and the govern­ment are achieved, CDB will be their strong­est sup­porter,” Gang said.

Singh said he would not dis­close the in­ter­est rate of the loan due to con­fi­den­tial­ity and com­mer­cial sen­si­tiv­ity.

“We don’t re­lease the terms and con­di­tions of our fund­ing fa­cil­i­ties, be­cause they are com­mer­cially sen­si­tive and un­der the re­quire­ments of con­fi­den­tial­ity,” Singh said, adding that the util­ity was in the process of ne­go­ti­at­ing fur­ther loans that could de­liver up to $1.5bn to bring Eskom to its fi­nanc­ing tar­get.

En­ergy an­a­lyst Chris Yel­land said the loan was a big boost for Eskom. “This loan is very im­por­tant to Eskom; it in­di­cates that Eskom is able to raise fi­nance from the largest de­vel­op­ment fi­nance in­sti­tu­tion in the world,” Yel­land said.

“It is a very im­por­tant loan, con­grat­u­la­tions for Eskom on con­clud­ing the deal.

Li Gang, deputy di­rec­tor-gen­eral of China De­vel­op­ment Bank (CDB), and Yan­song Rong of the Em­bassy of the People’s Repub­lic of China in South Africa, at the sign­ing cer­e­mony of the $1.5 bil­lion loan agree­ment be­tween Eskom and the CDB. PHOTO: DIMPHO MAJA

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