Eskom banks heavily on China, inks R20bn loan deal | Fin24
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Eskom banks heavily on China, inks R20bn loan deal

Jul 06 2017 15:27
Yolandi Groenewald and Matthew le Cordeur

Johannesburg - Despite a number of scandals, Eskom said international roadshows indicated that there was still a significant appetite from international investors for its bonds. 

Chief financial officer (CFO) Anoj Singh said the bond market could deliver up to $1.5bn (R19.78bn) in funding to bring Eskom to its financing target. But he said that going forward the state enterprise will rely significantly on developmental financial institutions such as the China Development Bank.

"We'll rely on them for around 45% to 50% for our finance needs," he said. He added that Eskom expects 10% of its funds to be raised from international bond markets. 

Eskom’s Interim Group Chief Executive Johnny Dladla said Eskom had secured 77% of its funding requirements for the 2017/18 financial year, after signing a $1.5bn loan with with the world's largest finance institution, the China Development Bank, on Thursday.

Singh said Eskom expected their debt to peak at R500bn over the next five years. The borrowings come despite the power utility being downgraded by rating agencies this year, after Moody’s, S&P and Fitch cut South Africa’s sovereign credit ratings.

He said Eskom's current total debt was R350bn.

Government guarantees

Currently Eskom was using R254bn of the R350bn available government guarantees.

"With the generosity of the finance minister the credit guarantee framework has been extended until 2023," he said.

Singh said Eskom has not increased the R350bn that the government provides. "We have not asked for more." 

He said this meant that Eskom has used R254bn of the guarantees to service physical debt.

"We obviously have a pipeline of debt that still has to be signed and we've committed some of those guarantees to make use of those facilities," he said.

The CFO said that Eskom had an internal aspiration, to start releasing some of the guarantees back to the fiscus. But he admitted that this would be difficult.

"That aspiration was on the basis that the national energy regulator Nersa would give us the tariff increase we requested," said Singh, adding that the sovereign downgrade also made it more difficult.

Loan for Medupi

The latest $1.5bn loan agreement will be used to finish the Medupi project in the Waterberg. The loan was the second of a loan agreement with the Chinese bank that will eventually total $5bn. The first with the bank, a $500m loan, was signed last year and was ring-fenced as working capital for Eskom. The loans are covered by government guarantees.

Singh said the exact conditions of the clause were confidential but told reporters that the loan had a five year draw down, which means the funds are available for the next five years.

Dladla said that for the 2016/17 financial year, Eskom increased its borrowings by over R60bn.

“We remain resolute that we will fully execute the required funding for the year," Dladla said, "but the difficult market conditions made Eskom's task to secure funding more challenging,”  he said in a statement last week.

“Our liquidity levels remain healthy and Eskom’s financial profile continues to improve and stabilise.

He said the availability of the government guarantees and Eskom's "stable financial profile", would enable the state utility to secure the remainder of this financial year.  Eskom is expected to use R43.6bn of its guarantee in 2016/17 and R22bn annually over the medium term.

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