Eskom Mulls Syndicated Loan If Bond-Market Conditions Unsuitable

  • South African utility secures African Development Bank funding
  • Power producer has secured 10 billion rand in placement

South Africa’s power utility will consider obtaining a syndicated loan if the terms for a bond deal are unattractive.

“Depending on market conditions, we may want to also look at a syndicated loan facility -- that will be a plan B to the global bond if the market conditions are not acceptable,” Eskom Holdings SOC Ltd. Chief Financial Officer Anoj Singh told reporters in Johannesburg Monday.

The utility that provides about 95 percent of power to the continent’s most industrialized economy has projected cashflow shortfall of 225 billion rand ($16 billion) for the five years through March 2018, the result of the energy regulator’s decision to grant the company half of the annual average tariff increase of 16 percent sought for the period. Eskom narrowed the gap to 191 billion rand through cost cutting, and plans to save a further 61.9 billion rand.

Last week, Eskom asked the National Energy Regulator of South Africa for permission to recover 22.8 billion rand of costs incurred in the year to March 2014. In June, Nersa rejected the utility’s request to raise prices by as much as 12 percent above an already-agreed 13 percent increase for the year to March 2016.

Cash Balances

Eskom should end the year with a cash balance of 10 billion rand to 15 billion rand, which will reduce the 47 billion-rand funding requirement for the year starting April 1 to about 30 billion rand, Singh said. The remaining funds needed will come from the cost-clawback application, if granted, and from a “private placement” of 10 billion rand that has already been concluded, he said.

The company has also secured a facility from the African Development Bank, Singh said, without providing more details. Eskom will sign an agreement with the lender in the next few days and will make details available then, Khulu Phasiwe, a spokesman for the utility, said in a text message.

The utility could also liquidate an insurance claim for its Duvha 3,600-megawatt coal-fired plant, where excess pressure in a boiler caused the unit to trip in March last year. The company wouldn’t disclose the value of the claim as negotiations with the insurer are being concluded.

Financial Year

“The organization is well positioned from a liquidity perspective for the rest of this financial year as well as the next financial year,” Singh said.

Eskom is struggling to meet demand after decades of underinvestment and delays in completing new plants. While it imposed power cuts on about 100 days earlier in the year, there have been less than three hours in the past three months.

While the grid remains tight, Eskom will be able to perform maintenance on its aging fleet of plants without having to resort to rolling blackouts until at least August, Chief Executive Officer Brian Molefe said.

The company has connected an additional 43 projects by independent power producers, adding 2,021 megawatts of supply, he said.

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