Johannesburg - Eskom, the state-owned utility that provides more than 95 percent of South Africa’s power, said it will watch the government’s debut Shariah-compliant bonds as an indicator for funding options.

Africa’s second-biggest economy has sold a sukuk or an Islamic bond at a record low borrowing cost for dollar debt.

The issuance may open the way for state-owned companies to tap a growing Muslim investor base and give Eskom more options to plug a 225 billion-rand funding shortfall.

“Eskom will follow the printing of the government sukuk funding as a barometer for its future funding plans,” the utility, based in Johannesburg, said in an e-mailed response to questions today.

“Given the quantum of Eskom’s funding plans, there is certainly value in sukuk funding to diversify its funding sources.”

Eskom is trying to ward off a downgrade threat by Standard & Poor’s and is racing to build new facilities to avoid a repeat of 2008 when blackouts cut industrial production for five days.

South Africa has already faced power cuts this year as outages at aging plants curbed electricity supplies.

Changes to the tax law, which currently “detracts from the value of issuing such instruments,” are being considered, according to Eskom.

“We would require amendments to the tax policy to allow Eskom to tap this market.”

South Africa’s $500 million of 5.75-year securities were priced with a coupon of 3.9 percent, at the bottom end of the range marketed to asset managers, according to a statement yesterday from the National Treasury.

Yields on Eskom’s dollar debt due August 2023 were little changed at 5.89 percent by 9:47 am in Johannesburg.

“Some of the pertinent issues for Eskom when exploring the sukuk markets would be the cost, volume and tenors of such funding,” compared with a Eurobond, the company said. - Bloomberg News