Eskom’s dollar bond in high demand

24 January 2011

Eskom’s 10-year, US$1.75-billion bond – aimed solely at international investors – has been more than two-and-a-half times oversubscribed, says Public Enterprises Minister Malusi Gigaba, calling it a sign of investor confidence in South Africa.

“The oversubscription on the bond issuance demonstrates international investors’ confidence in Eskom and the South African government,” Gigaba said in Pretoria last week.

The oversubscription follows roadshows conducted in the US, UK and Europe. The US$1.75-billion (about R12.3-billion) bond is only available to foreigners, and may not be sold to investors in South Africa.

Funding capital expansion

“We welcome the confidence that international investors have shown in Eskom,” said Eskom CEO Brian Dames, adding that the offer was “an important part of our funding programme. The proceeds will be used to fund our committed capital expansion programme, and so help to keep the lights on for all South Africans.

“This is Eskom’s first dollar bond issue, and the pricing is extremely attractive for us,” Dames said. “It has been facilitated by the government’s strong support for Eskom, and we are within the cost of funding target set by Eskom’s regulators.”

Lowering risk profile

Gigaba said the government’s support of Eskom had helped to lower the utility’s risk profile and had provided the foundation for Eskom once more to be able to raise funding off its own balance sheet.

Ratings agencies, including Moody’s and Fitch, have responded favourably to the government’s decision to increase guarantees for Eskom debt to a total of R350-billion, up from R176-billion.

“We hope that this trend will persist as other state-owned enterprises approach the market to raise funds for their capital expansion programmes, as this will serve to reduce pressure on the fiscus,” Dames said, adding that completion of the utility’s build programme was critical for ensuring security of electricity supply in South Africa.

Source: BuaNews