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One of Africa’s largest fixed-line telecommunications operators Telkom SA has signed a syndicated US$127mn Sinosure-backed facility to secure equipment from the Chinese company Huawei.

The deal will in part support Telkom’s five-year expansion plan into the mobile telecommunications market in South Africa. The company sold its stake in its mobile arm Vodacom last year, and is in the process of rolling out its own new mobile network.

Absa Capital, the investment banking arm of Absa Bank, and Barclays Capital (facility agent) acted as joint coordinating mandated lead arrangers on the facility. The official Chinese export credit agency Sinosure provided 95% cover on the transaction and the syndicated deal achieved an oversubscription.

SMBC China acted as Sinosure agent, while HSBC, SMBC Europe, Citibank, China Development Bank, Bank of China, and China Construction Bank joined as mandated lead arrangers.

These loans are the first transactions to be signed under an ECA umbrella facility that will cover Telkom’s ECA financing needs over the next five years. The long-term agreement sets out a basic framework, with a number of pre-agreed terms aimed to enable future ECA deals to be signed relatively easily.

It is expected that at least one, if not two or three further ECA-backed deals will be signed this year to support both the network rollout and Telkom’s ongoing capital expenditure.

The deal reflects the growing trade flows between China and Africa, and this transaction could herald increased Sinosure support for these trade transactions.

“The Chinese are certainly becoming more influential in Africa. Buyers say the quality of the products has improved and they are certainly competitive. If Sinosure comes on-board, it will help Chinese exporters further. We will see a lot more Sinosure-supported deals going into Africa,” notes Ed Harkins, director, Capex financing solutions team in London, at Barclays Capital to GTR.

Barclays Capital also said in a statement that Telkom was able to achieve a cheaper all-in cost than was otherwise available in either the international bank or bond markets. The bank also reveals they were able to achieve a more competitive premium from Sinosure than originally anticipated.

“If you compare it [the facility pricing] to Telkom raising an international bond in dollars, and compare the all-in cost of that to this facility – it is much inside that,” Harkins tells GTR.

The bank also praised the Chinese export credit agency’s flexibility during the deal process.

“Whilst many ECAs state that they are flexible, Sinosure demonstrated that they were able to suggest solutions that were both innovative and adaptable to the borrower’s requirements,” Gabriel Buck, Barclays Capital, head of capex financing solutions team and global head of ECA financing said in a statement.

“The ECA market has maybe seen Sinosure as fairly rigid, and I think this transaction has demonstrated that that is not necessarily the case,” Richard Wilkins, director, capex financing solutions team, in London, tells GTR.

The transaction also marks one of the first times that a Sinosure-supported transaction does not feature any Chinese arrangers as the co-ordinating lead arrangers.

“It is the first Sinosure deal for Barclays. We are very proud that we got it closed in the manner we did, and were able to bring in a good mix of Chinese and international banks as lenders. Sinosure has been an excellent partner and it has given us confidence we can work in the same way going forward,” Wilkins explains.

Harkins adds: “It [the deal] demonstrates that the Sinosure market will develop going forward, and Western banks can start taking more of a role in deals alongside Chinese banks.”

Telkom launched its new mobile network, branded 8ta, towards the end of 2010. It has invested an initial US$845.8mn into what will become South Africa’s fourth cellular network operator.

Telkom’s share price was knocked in mid-January, after the news that its acting chief executive Jeffrey Hedberg will leave the firm after the expiration of its contract in March.