Deal information

Borrower: Telkom (South Africa)
Amount: US$127mn
Joint co-ordinating mandated lead arrangers: Barclays Capital (sole ECA adviser), Absa Capital
Mandated lead arrangers: China Development Bank, Bank of China, China Construction Bank, Citibank, HSBC, SMBC Europe
ECA: Sinosure (SMBC China as Sinosure agent)
Law firms: Simmons and Simmons (lenders), Cliffe Dekker Hofmeyr (lenders), Edward Nathan Sonnenbergs (Telkom)
Tenor: 7 years
Date signed: December 31, 2010
Joint co-ordinating mandated lead arrangers Barclays Capital and Absa Capital closed a syndicated US$127mn Sinosure-backed facility with Telkom, one of Africa’s largest fixed-line telecommunications operators, at the end of 2010.

Sinosure provided 95% cover on the transaction and the syndicated deal achieved an oversubscription.

The deal helped Telkom to secure equipment from China’s Huawei, and will in part support the African company’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.

It is thought that the transaction is the largest Sinosure deal into South Africa to date.

It is also is one of the first deals closed in Africa to involve Sinosure support, but not feature any Chinese arrangers as 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,” Richard Wilkins, director, capex financing solutions team, in London explains.

Ed Harkins, director, Capex financing solutions team in London, at Barclays Capital adds:”[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.”

The transaction also reflects the growing trade flows between China and Africa, and the significance of Chinese investment in supporting the development of African infrastructure.

“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,” says Harkins at Barclays Capital.

All the participating banks note Sinosure’s flexibility in putting together the deal, and expect this transaction to herald a strong pipeline of similar deals.

“The ECA market has maybe seen Sinosure as fairly rigid, and I think this transaction has demonstrated that that is not necessarily the case,” adds Wilkins at Barclays Capital.

“Our client-centric approach and co-coverage model with Barclays Capital, as well as our deep and longstanding relationship with Telkom, enabled us to structure and successfully implement this innovative facility,” comments Anthony Wilter, co-head, corporate and investment banking coverage, Absa Capital.

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.

Toshio Ishizuka, global head of trade finance, SMBC Europe, comments: “We are very pleased to support Telkom’s expansion through this landmark deal, and the growing trade flow between Asia and Africa, complementing Barclays Capital and Absa Capital in our strategic relationship”.

His colleague Hirofumi Inoue, head of trade finance SMBC China adds: “We are very honoured to be mandated as Sinosure agent, with whom we have an excellent relationship and track record. Our detailed knowledge of Sinosure’s requirements enabled us to make a major contribution to the successful close of this transaction.”

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 in 2011 to support both the network rollout and Telkom’s ongoing capital expenditure.

“The oversubscription of the Telkom facility further demonstrates significant appetite for well structured ECA supported transactions in the South African bank market,” observes Inal Henry, loan capital markets, Absa Capital.

“ECA financing continues to offer our clients an attractive means of securing extremely competitive pricing and terms. The integrated Absa Capital/Barclays Capital platform enables us to deliver this key product seamlessly to our clients in both South Africa and Sub-Saharan Africa,” adds Jonathan de La Pasture, head of global loans, Absa Capital.