Eskom widens its funding search to sukuk market

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Eskom Source: Google Images

South Africa’s indebted power utility Eskom Holdings plans to issue a R1 billion sukuk bond as it tries to diversify funding sources to reduce borrowing costs.

Eskom has appointed a lead arranger “to work towards establishing time lines for the issue”, spokesperson Sikonathi Mantshantsha said in an emailed response to questions on Monday. The utility has about R450 billion in debt and no current plans to ask the government for additional cash injections.

The company’s funding plan “requires sizable funding that can provide diversification and longer tenors at reduced finance costs”, Eskom said in a request for proposals posted on the National Treasury website. “Eskom has assessed the viability of an innovative local-currency South African-based Sukuk funding solution that would enable Eskom to further develop its borrowing plan.”

The latest proposal for a rand-denominated sukuk was first reported by Business Insider.

Shariah-compliant bonds have been considered as a funding source by Eskom since at least 2012. It said two years later that it would watch the South African government’s debut sukuk issuance as a barometer for future funding plans. While the government has sold one dollar-denominated sukuk, it hasn’t issued one in the rand market.

South Africa sold $500 million of Shariah-compliant bonds in 2014 at a 3.9 percent profit rate, at the time its lowest-cost dollar bond yet, according to data compiled by Bloomberg. Investors bid for $2.2 billion of the debt, which matured this month.

Eskom’s proposal, issued on June 24, invites legal institutions and companies to work with the company on the bond, which will include a government guarantee and have a listing on the Johannesburg Stock Exchange (JSE).