State-owned power utility Eskom has successfully priced a two-tranche ten-year $1.5-billion global bond, under its $4-billion global medium-term note programme, following a series of investor meetings held by the utility, the Department of Public Enterprises, and Europe and US National Treasuries.

The first tranche of $1-billion will be issued under the R350-billion government guarantee framework at 6.34%, while the second tranche of $500-million will be issued unguaranteed at 8.45%. Both tranches are due by August 2028.

“This milestone comes at a time when Eskom has arguably reached a tipping point in its stabilisation after experiencing what was a tumultuous year, stemming from a qualified set of financial results and characterised by weak financial ratios, governance lapses and leadership stability issues which culminated in further ratings downgrades and constrained access to funding,” Eskom stated.

In that context, the oversubscription of the notes (the bond) and the relatively large unguaranteed component are both a positive indication of strengthened investor sentiment and Eskom’s improved integrity and credibility in financial markets, which has informed the investor appetite that was almost nonexistent a year ago.

“Investors have been consistent throughout our interactions on what they view as major contributors to their improved confidence, being, the strides that Eskom has made in decisively dealing with maladministration, strengthening our internal controls and tightening our governance processes in a short space of time.”

While the audit qualification of the utility’s financials was cause for concern, investors have acknowledged the intensity of the clean-up and consequence management as a necessary base for restoration and renewal to transition the company.

The feedback received from investors is consistent with Eskom’s focus areas and the utility views this as positive and responsive to the board and management’s turnaround objectives, Eskom said.

Eskom acting CFO Calib Cassim said this offer forms an integral part of Eskom’s R72-billion borrowing plan for the financial year 2018/19, bringing the total committed funding for this year to about 72%.

The proceeds of the offering will contribute towards funding for the completion of Eskom’s current capital expansion programme and to repay the bridge loan signed with a suite of banks in February.

“Eskom’s leadership will continue to work hard to effectively fulfill the strategic role of ensuring security of supply and advancing the country’s economic growth goals,” said Eskom CEO Phakamani Hadebe.

The joint mandated lead managers of the issue were Standard Bank, Absa, Barclays and JP Morgan together with their respective local partners Africa Rising Capital, Quartile Capital and Dew Partners.

The notes will be listed on the Irish Stock Exchange trading as Euronext Dublin.