Paul O’Flaherty]Johannesburg, South Africa --- ESI-AFRICA.COM --- 21 January 2011 - South African power utility Eskom Holdings Limited may sell more international bonds after demand for its US$1.75 billion bond sale, the first in the U.S. currency, exceeded supply more than 2 1/2 times.
“Going forward they’ll definitely tap the international market again,” said Deon van Zyl, head of fixed interest investment at Metropolitan Asset Managers, in a telephone interview with Bloomberg from Cape Town.
The 10-year bonds were priced to yield 250 basis points more than comparable U.S. Treasuries, Eskom said. Ten-year Treasuries yielded 3.34% today. The yield on Eskom’s dollar bonds puts the securities on par with those of Brazil’s national energy company Centrais Eletricas Brasileiras SA, whose 2019 dollar-denominated debt yielded 5.05%, according to data compiled by Bloomberg.
“Based on this, I should certainly encourage them to issue more,” Michael Jansen van Rensburg, head of fixed income trading at Cape Town-based FutureGrowth Asset Management, said by phone. “It’s a lot quicker, and it’s an easier mechanism,” he said, adding that direct loans could have demanding conditions.
Eskom is spending R485 billion over seven years to plug a capacity shortfall that shut mines and factories and blacked out homes in 2008. The company supplies about 95% of South Africa’s electricity, powering BHP Billiton Limited’s aluminum smelters, Xstrata Plc’s ferrochrome smelters and AngloGold Ashanti Limited’s mines. It is also the main power supplier to platinum mines in the country, which is the world’s largest supplier of the metal.
The offering is expected to close on 26 January, and an application has been made for the senior unsecured and unguaranteed 5.75% notes to be listed on the Luxembourg Stock Exchange, Eskom said.
The extent of the support for the first issue “suggests that it’s certainly a possible avenue for funding going forward,” said Simon Howie, credit portfolio manager at Investec Asset Management.
“While Eskom intends to continue tapping local and international markets for funds, it can’t say at this stage whether it will issue more international bonds,” chief financial officer Paul O’Flaherty said.
“While demand for its first dollar bond issue was excellent, Eskom will tap international markets cautiously,” O’Flaherty explained in a phone interview with Bloomberg News. “We won’t be a regular visitor offshore to raise that kind of money.” The issue was about equal to the total that Eskom raises through local issues in South Africa annually, he added.
He pointed out that Eskom was looking to raise about R300 billion for its expansion programme. Of that, about R200 billion had been secured or identified, and Eskom was looking to raise R90 billion rand through bond issues over seven years.