Eskom bond sales costing more after downgrade

Johannesburg - Eskom foresees paying higher costs on three bonds it plans to issue as it is struggles to meet the country's electricity needs and was reduced to junk by Moody’s Investors Service last year.

“We do believe that we will be able to do the transactions successfully, otherwise we wouldn’t,” Eskom treasury senior manager Caroline Henry said in an interview in Johannesburg on Thursday.

“But it remains to be seen how much that’ll cost us and what the volumes look like. We can probably still get away with the volume, but it’ll be more costly, and we’d have to do a lot more than we normally have.”

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Moody’s cut the utility’s rating on November 7, two weeks after South Africa announced a rescue plan of at least R20bn for Eskom. That was enough for the company to preserve its investment grade at Standard & Poor’s.

The producer needs to fill a R225bn cash-flow gap after the regulator granted it half the average percentage increase in annual tariffs sought for the five years through 2018.

The utility has “three large transactions” it is busy with as part of plans to borrow about R250bn over the five years through March 2018, Henry said.

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“We’re comfortable we can roll out our funding plan as we are,” she said. “People think we don’t have access to borrowing. I’m inundated with people who want to lend us money, but the point is you can’t in good conscience sign a loan when you don’t know how you’re going to repay it.”

Debt Outstanding

Eskom has R371bn of loans, bonds and interest outstanding through 2049, with R7bn in principal debt and R11.1bn in interest due this year, according to data compiled by Bloomberg.

Eskom implemented 15 days of rolling load shedding last year, the first since 2008, and did the same on January 9 as the state- owned company’s aging plants struggle to meet demand for power.

New generation capacity has been delayed by construction issues and labour unrest, prompting warnings of a high risk for supply shortages over the coming months.

Read: SA's reserve tank almost exhausted

The company forecasts a high probability of rolling load shedding every weekday except four until the end of April, it said in a slide presentation in Johannesburg on Thursday. Scheduled cuts help the utility prevent a total collapse of the grid.

The Cabinet on December 11 approved a five-point plan for power, which includes extending existing co-generation contracts with the private sector and procuring 2 500MW from independent producers of coal-fired electricity. The programme is due to start at the end of January.

Eskom is seeking R3bn to cover diesel costs from mid-February to carry on running open-cycle gas turbines that will cover 2 000MW of generation.

The utility has been firing the turbines, which used about 140 million litres of diesel in November, for as many as 12 hours a day, four times longer than they were designed for, to plug the power deficit, and has almost run out of budgeted funds for them.

Fin24 tech editor Gareth van Zyl discusses the key points from the briefing:



Full Eskom presentation: