[miningmx.com] – SOUTH African power utility, Eskom, has successfully priced a new 10-year, $1bn (R10bn) bond with the order book coming in around $4.3bn – some four times oversubscribed.
The development helps to dismiss fears the lower five-year annual electricity tariff increase granted to it earlier this year, which was half of the rate for which it applied, would compress its capital-raising ability.
“It’s an expression of international investor confidence in Eskom, and South Africa,” Eskom CEO, Brian Dames, told Reuters. The new bond is a senior, unsecured, and unguaranteed 6.75% global bond that will become due in 2023, for forms part of Eskom’s $4bn global medium term note programme.
Eskom’s success follows from a series of investor meetings between it and its shareholders which were held in the US and Europe.
The state-owned power company will be using the money it receives to fund its massive new build programme, currently worth around R350bn. Eskom provides around 95% of South Africa’s electricity.
“We welcome the confidence that international investors have shown in Eskom and in South Africa, particularly in the midst of such challenging markets,” Dames said today in a statement released by Eskom. He said the offer was an important part of Eskom’s well-established funding programme.
“The proceeds will contribute to the completion of our committed capital expansion program and so help to keep the lights on for all South Africans. Its success was facilitated by government’s strong support for Eskom,” Dames said.
Minister of Public Enterprises, Malusi Gigaba, said: “The positive response by investors is an indication that investors recognise Eskom’s fundamental importance to the economy. This is despite the challenges that Eskom faces in responding to the regulator’s tariff determination.”
The joint mandated lead managers of the issue was Barclays and Citigroup together with their respective local partners Vunani and aloeCap. An application will be made for the notes to be listed on the Luxembourg Stock Exchange.
The news is welcome at a time when Eskom’s ongoing access to affordable funding is proving to be a big headache for the company that’s still heavily reliant on government guarantees to look attractive to investors.
At Eskom’s annual results presentation last month, outgoing chief financial officer Paul O’Flaherty said in this regard that it was imperative that Eskom maintained its credit rating going forward.
O’Flaherty warned, however, that Eskom would struggle to get an investment grade stand-alone credit rating in the next few years, mainly due to recent tariff increases allowed by Nersa, that were not ideal.
Eskom has been trying to get an investment-grade stand-alone rating so that Eskom will be able to raise the capital it needs at affordable rates and without government guarantees. The company still needs to raise around R250bn for its ongoing capital investment programme that includes Medupi and Kusile.
Eskom’s efforts hit a speed bump when credit ratings agency Moody’s downgraded Eskom’s standalone credit quality by one notch.
In February, the National Energy Regulator of South Africa (Nersa) granted Eskom a tariff increase of 8% per year for the next five years although Eskom requested 16%. This lower increase means that Eskom will be collecting about R220bn less over the next five years. This was one of the reasons Moodys went with the downgrade.
Eskom is not considering asking Nersa to reconsider the tariff granted to it as had been reported previously.
