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South Africa’s state-owned power utility Eskom concluded export credit agency (ECA) covered financing arrangements for €705mn (US$979mn) at the end of last year. The loans, covered by Germany’s Euler Hermes, will be used to fund part of the foreign content of the Kusile boiler contract with Hitachi Power Europe.

Kusile is a coal-fired power station in South Africa’s Mpumalanga province.

“This transaction demonstrates local and international bank support for the region’s generation capacity requirements – to be delivered by Eskom using alternative sources of funding,” says Dario Musso, investment banking, infrastructure finance at RMB.

A total of four international lenders (KfW Ipex-Bank, HSBC, Bank of Tokyo-Mitsubishi UFJ and Deutsche Bank) and three South African lenders (Standard Bank of South Africa, Nedbank Capital and Rand Merchant Bank) participated in the transaction.

Philna Potgieter, head of export credit finance at Nedbank Capital, comments: “This complex transaction, completed in record time, was made possible through the collaboration, dedication and commitment of all parties. As a proudly South African investment bank, Nedbank Capital is pleased to be associated with this initiative which ultimately contributes to ensuring sustained energy supply for our country.”

The €705mn loan is divided into three facility agreements, consisting of a €345mn floating rate facility; a €100mn fixed rate facility; and a €260mn (equivalent) South African rand (ZAR) floating rate facility.

“Of interest is the fact that this is one of the first ZAR-denominated deals for this market – and the first for Eskom,” says Greg Fyfe, head of export finance at Standard Bank, which provided the rand equivalent of €100mn on the ZAR tranche.

“The rand funding pool in South Africa is only so deep, and South African banks are often constrained by single obligor limits, so this transaction really helps Eskom to access more rand liquidity,” Fyfe adds.

The loans are repayable over 12 years, starting six months after the commissioning of each unit of the Kusile power station.
KfW Ipex-Bank acted as documentation bank, ECA agent and Euro floating rate facility agent. Standard Bank acted as ZAR floating rate facility agent, and ANZ Bank acted as adviser to Eskom for the structuring and coordination of the transaction.

This is the first time Euler Hermes has provided cover for South African rand financing in favour of local banks. “We see this transaction opening up opportunities for South African borrowers to raise funding in local currencies and also for the South African banks to participate and provide such facilities,” says Subash Narayanan, director at ANZ.

Kusile is the second advanced coal-fired power plant project being pioneered by Eskom, after the Medupi power station in Lephalale, where construction commenced in 2007. Most coal-fired power stations take about ten years to build, but due to capacity constraints, Kusile and Medupi projects have both been fast-tracked.

The Kusile station will consist of six super critical units, each rated at approximately 800 MW installed capacity, giving a total of 4,800 MW. As such, once finished, it will be one of the largest coal-fired power stations in the world.

Commenting on the merits of the deal, Thomas Selzer, vice-president at KfW Ipex-Bank, highlights the unusually large loan amount, and the length of tenor. He explains that because there are six units, the exports are being shipped on a step-by-step basis. “This means you have a staggered build-up of the boilers and it means a long disbursement period, and a regular 12-year repayment period.”

Eskom’s finance director, Paul O’ Flaherty, adds: “The loans came at a crucial and significant time for Eskom and South Africa as the industry continues to balance the smoothing in of cost-reflective tariffs with the vast capital expansion required for a growing economy. We are encouraged by this consortium of banks’ demonstration of their commitment and support for Eskom and the development of the broader Southern African economy.”
Deal information

Borrower: Eskom Holdings
Amount: €705mn
Mandated lead arrangers: KfW Ipex-Bank, HSBC, Bank of Tokyo-Mitsubishi UFJ, Deutsche Bank, Standard Bank, Nedbank Capital, Rand Merchant Bank
ECA: Euler Hermes
Law firms: Allen & Overy; White & Case; Edward Nathan Sonnenbergs
Tenor: 18 (6 +12) years
Date signed: December 11, 2009