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Eskom to raise first global bond in US early next year, all projects now 'fully funded'

25th October 2010

By: Terence Creamer
Creamer Media Editor

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South Africa's State-owned power utility Eskom is in the process selecting its banking partners to support it with the design and implementation of what will be a multibillion-rand international bond programme, which will kick off in the US early next year.


The group was committed to spending some R553-billion over the next seven years on capital projects and has uncommitted projects worth a further R140-billion.

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CEO Brian Dames said on Monday that the precise details of its capital-raising plans would only be released once the programme had been finalised, but also revealed that there would be a road show in January 2011.


Previously, the utility had indicated that it would be drawing heavily on the domestic and international bond markets to help it fund a build programme that should see it add some 13 000 MW to the power-stressed grid by 2017.

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Eskom has indicated that it could borrow R90-billion a year over a three-year period to help fund the programme and that up to R50-billion of that will be sourced from the international markets.


The balance of the funding would arise from shareholder equity, loans and guarantees, as well as from consumers, who are facing strongly rising tariffs of around 25% a year between 2010 and 2013. Government has already committed to injecting R60-billion in the form of a subordinated loan and has approved guarantees of a further R176-billion. But more taxpayer support was likely.


The utility was also targeting cost savings of R20-billion over the next three years, with most of these likely to arise from efficiencies surrounding its yearly procurement budget of R90-billion.


"We intend to approach the international bond markets early next year. The markets are very liquid, we know that there is significant appetite for Eskom [bonds] . . . and we have the full intent . . . to be on a road show first thing in January and to be in the international bond markets raising money," Dames said.


He added that the "first tranche" would set the benchmark for its fundraising efforts and "we are quite clear that the first market that we will approach will certainly be the US bond market".


"It needs to then be followed on with a full programme of fundraising over the next year or so."


FUNDING PLAN


He also confirmed that all its current projects were "fully funded" and that it was, thus, moving ahead with the outstanding orders for the R142-billion Kusile power station, the first unit of which was now scheduled to come online in 2015, instead of 2014.


Details of the funding plan, which were initially expected in July, would be made known "soon", probably by the National Treasury.


This plan was likely to see government plugging more of the utility's funding gap - which peaks at above R100-billion within the first three years - than had initially been anticipated. The cumulative gap over seven years, excluding the uncommitted capital projects, stood at around R50-billion. This means that priority is being given to dealing withthe three-year peak.


"We have an agreement [with government], but I think it is important that we allow those processes to be completed and then we will have the necessary announcements," Dames said.


It was possible that some of these announcements could be made in the upcoming Medium-Term Budget Policy Statement, which will be released by Finance Minister Pravin Gordhan on Wednesday.


Meanwhile, the first drawdown on the $3,75-billion World Bank loan had also been approved and the first "money will be in our accounts this week".

 

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