Eskom
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South Africa’s power utility Eskom has successfully priced a two tranche 10 year $1.5 billion global bond due in 2028 under its $4 billion global medium-term note programme.

The announcement follows a series of investor confidence meetings by Eskom, its shareholder, the Department of Public Enterprises, and National Treasury in Europe and the US.

The first tranche of $1 billion will be issued under the R350 billion government guarantee framework at 6.34% while the second tranche of $500 million will be issued unguaranteed at 8.45%.

Both tranches are scheduled to mature in August 2028.

Eskom’s Acting Chief Financial Officer, Calib Cassim said: “This offer forms an integral part of Eskom’s R72 billion borrowing plan for the financial year 2018/19, bringing the total committed funding for this year to approximately 72%. The proceeds of the offering will contribute towards funding for the completion of Eskom’s current capital expansion programme, and to repay the bridge loan signed with a suite of banks in February 2018. We welcome the confidence that the investor community has shown in Eskom and in South Africa, notwithstanding challenging markets and business environment”.

The joint mandated lead managers of the issue were Standard Bank, Absa, Barclays and JP Morgan together with their respective local partners Africa Rising Capital, Quartile Capital and Dew Partners.

The Notes will be listed on the Irish Stock Exchange trading as Euronext Dublin.

Investor confidence shows stability

This milestone comes at a time when Eskom has arguably reached a tipping point in its stabilisation after experiencing what was a tumultuous year, stemming from a qualified set of financial results and characterised by weak financial ratios, governance lapses and leadership stability issues which culminated in further ratings downgrades and constrained access to funding.

With that context, the over-subscription of the Notes and the relatively large unguaranteed component are both a positive indication of strengthened investor sentiment and Eskom’s improved integrity and credibility with financial markets, which has informed the investor appetite that was almost non-existent a year ago.

Investors have been consistent throughout our interactions in what they view as major contributors to their improved confidence, being, the strides that Eskom has made in decisively dealing with maladministration, strengthening our internal controls and tightening our governance processes in a short space of time.

“The successful pricing of the Notes validates the improved investor sentiment towards Eskom. The investor confidence reflects the positive actions that have been implemented by Eskom’s leadership to transition the company towards operational and financial sustainability. Eskom’s leadership will continue to work hard to effectively fulfill the strategic role of ensuring security of supply and advancing the country’s economic growth goals”, said Phakamani Hadebe, Group Chief Executive of Eskom.

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Eskom’s improved leadership

The improvement in our EBITDA has also been well received by investors as a strong signal that our new leadership is serious about cost containment and operational efficiencies.

Whilst the audit qualification was cause for concern, investors have acknowledged the intensity of the clean-up and consequence management as a necessary base for restoration and renewal to transition the company.

The feedback received from investors is consistent with Eskom’s focus areas and we view this as positive and responsive to Board and management’s turnaround objectives. We will continue to prioritise entrenching financial discipline as a key principle critical to fulfilling our mandate of stabilisation and reform, and ultimately setting Eskom up for sustained success.

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The participation of our shareholder and National Treasury in the investor confidence meetings also positively contributed to our success by further demonstrating government’s support for Eskom as a critical and strategic contributor to the South African government's goal of security of electricity supply; as well as economic growth.