Eskom signs USD1.5 billion loan agreement with China Development Bank

Phakamani Hadebe

Eskom has signed a USD1.5 billion (approximately R19.6 billion) loan agreement with the China Development Bank (CDB) at a signing ceremony held at Eskom’s head office Megawatt Park in Sunninghill, Johannesburg.

The facility will form part of the financing of the Medupi Power Plant, the South African company confirmed in a release.

Eskom’s Interim Group Chief Executive Johnny Dladla said: “We are pleased to see the continuation of the journey of co-operation that we started with our Chinese partners last year.

“The conclusion of this second loan agreement continues to demonstrate financial markets’ confidence in Eskom and South Africa notwithstanding the challenging market conditions. We are confident that the agreement will cement Eskom’s relationship with the CDB. This loan will also aide us in ensuring that we complete the Medupi project and ensure security of energy supply.”

The new acting Eskom CEO Johnny Dladla had previously revealed that Eskom had secured 77% of its funding requirements for the 2017/18 financial year.

He said that for the 2016/17 financial year, Eskom increased its borrowings by over R60bn.

“We remain resolute that we will fully execute the required funding for the year, albeit under challenging market conditions,” Dladla said in a statement last week.

Our liquidity levels remain healthy and Eskom’s financial profile continues to improve and stabilise.

“Backed by the availability of the government guarantees and the stable financial profile, we do not foresee significant impediments in the execution of the remainder of the FY17/18 funding requirement,” said Dladla.

Eskom is expected to use R43.6bn of its guarantee in 2016/17 and R22bn annually over the medium term, Treasury said in its 2017 Budget Review. Eskom has a R350bn guarantee for the 2016/17 year, with an exposure of R218.2bn.

“Gross foreign borrowings are expected to account for the majority of total funding over the medium term, largely as a result of Eskom’s efforts to obtain more developmental funding from multilateral lenders,” Treasury said in the Budget Review.

The borrowings come despite the power utility being downgraded by rating agencies this year, after Moody’s, S&P and Fitch cut South Africa’s sovereign credit ratings.