Li Gang, deputy director-general of China Development Bank (CDB), and Yansong Rong of the Embassy of the People’s Republic of China in South Africa, at the signing ceremony of the $1.5 billion loan agreement between Eskom and the CDB. Photo: Dimpho Maja
Johannesburg - Eskom on Thursday signed a $1.5billion (R20bn) loan agreement with the China Development Bank (CDB) to assist it with the financing of the Medupi power station in Lephalale, Limpopo.

The deal comes as the power utility battles a spate of problems that has seen two of its most senior leaders leave and a downgrade by ratings agencies.

Eskom acting group chief executive Johnny Dladla yesterday said that the deal with one of the world’s biggest lenders would go a long way in mitigating its liquidity risk and would boost investor confidence on its bonds.

Dladla said the deal also symbolised Eskom’s financial stability and that it was still able to service its loans, despite adverse market conditions in South Africa and the world.

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“This is more than just an additional funding for the Medupi project, it symbolises a partnership for a long sustainable journey of growth and development for South Africa,” Dladla said. “This loan will aide us in ensuring that we complete the Medupi project and ensure security of energy and supply,”

Last month international ratings agency Moody’s cut Eskom’s rating to near junk, citing governance weaknesses and concerns that its operating performance was unstable. It reduced Eskom’s rating from Ba1 to Ba2, on the same day that board chairperson Ben Ngubane resigned.

Eskom chief financial officer Anoj Singh said the deal signified international investor’s appetite for its bonds. Singh said while the interest rate agreed upon remained confidential, the loan would be payable over a 15-year period and have a five-year draw down.

He said Eskom would be going aggressively on the bond market to raise fund for its financial targets.

“The interest rate at which we have settled the facility agreement is the competitive rate; we have benchmarked it against the potential insurance in global capital market, so it is relatively appropriately priced,” Singh said.

“Eskom balance sheet is around R330 to R350bn on the government guarantee utilisation, we have R350bn available to us and through the minister of finance we guarantee that the framework agreement has been extended until 2023.”

Eskom is the second major state-owned enterprise to receive the CDB loan facility. In 2015, the bank signed a R30bn loan agreement to fund Transnet’s long-term programme aimed at renewing its ageing locomotives.

Transnet said at the time that the repayment term of the loan would stretch to 15 years, with a grace period of four-and-a-half years, while the locomotives were under construction.

CDB deputy director-general manager Li Gang said the loan was extended to solve Eskom’s liquidity problems. Gang said it also marked the long-term sustained, stable and healthy relationship between China and Africa. He said CDB had thus far dispensed $4.2bn in loan facilities to South Africa.

“We believe as long as Eskom does everything well, and fulfils its commitment to the community and the people and ensures that the goals of the country and the government are achieved, CDB will be their strongest supporter,” Gang said.

Singh said he would not disclose the interest rate of the loan due to confidentiality and commercial sensitivity.

“We don’t release the terms and conditions of our funding facilities, because they are commercially sensitive and under the requirements of confidentiality,” Singh said, adding that the utility was in the process of negotiating further loans that could deliver up to $1.5bn to bring Eskom to its financing target.

Energy analyst Chris Yelland said the loan was a big boost for Eskom. “This loan is very important to Eskom; it indicates that Eskom is able to raise finance from the largest development finance institution in the world,” Yelland said.

“It is a very important loan, congratulations for Eskom on concluding the deal.