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On August 30, acting as sole export credit agency (ECA) advisor, arranger, agent and lender, Deutsche Bank signed a €114mn export credit facility with Eskom, South Africa’s 100% state-owned electricity provider.

Eskom has recently embarked on a major capital expenditure programme to address the shortage of electricity supply capacity in South Africa. This entails a significant borrowing requirement across a number of local and international debt instruments.

Eskom had not borrowed from the ECA market for 15 years and was determined to achieve the most competitive financing terms available from ECAs for this deal. It had been able to fund its relatively modest requirements locally up to that time.

After a competitive bidding process against many international banks, Deutsche Bank was selected by Eskom to act as its advisor in re-introducing the company to the major ECAs, and to arrange ECA-supported finance alongside the import of capital goods equipment from Europe, Japan and the US.

By undertaking a roadshow of European ECAs with Eskom senior management, Deutsche Bank was instrumental in promoting a competitive pricing environment amongst ECAs keen to encourage Eskom to source from their own national exporters. Euler Hermes was ultimately chosen as the insurer

The financing terms ultimately obtained by Eskom were below that normally associated with this class of borrower in the ECA market and the tenor was also held out to 13 years.

“Eskom is a corporate institution whose borrowings do not benefit from any support from the South African government,” says Piers Constable, director of structured trade and export finance at Deutsche in London. “This class of borrower would normally pay a considerably higher ECA risk premium than the sovereign. Deutsche was instrumental convincing the ECAs that Eskom risk should be considered as equal to the South African government, which led to a significant reduction in premium costs for Eskom.”

The €114mn loan will be used to finance the import of seven open cycle gas turbines from Siemens in Germany, to be supplied to two new power stations currently under construction in the Western Cape.

Deutsche Bank’s strong track-record with all the global ECAs, its close relationship locally with Eskom, and its competitive pricing and first-class structuring capabilities all contributed to this successful deal, claims the bank.

Although this was a standalone transaction, Eskom is expected to be accessing further ECA facilities during 2007-10 as a bulk of contracts are placed under its capex programme. For example, Eskom has recently signed a declaration of intent with Japan Bank for International Co-operation (JBIC) to finance Japanese imports.

Eskom engages in the generation, transmission and distribution of electricity to industrial, commercial, and residential customers. The company supplies 95% of South Africa’s electricity and around 50% of the total electricity consumed on the African continent.

Population and economic growth have placed a huge strain on South Africa’s electricity supply capacity with major cities already experiencing significant power cuts. It is vital to South Africa’s future economic prosperity that electricity supply is readily available to meet the massive growth in demand for power.


Deal information:

Borrower: Eskom
Amount: €114mn
Sole adviser, arranger and lender: Deutsche Bank
ECA: Euler Hermes
Tenor: 13 years
Law firm: White & Case (borrower)
Date signed: August 2006