Government switches bonds to relieve pressure
by Linda Ensor,
2015-07-03 15:04:16.0
THE government switched R203bn short-term debt in the form of domestic bonds for longer-term debt between 2008-09 and 2014-15, Finance Minister Nhlanhla Nene said on Friday.
He said the bond-switch programme was intended to ease pressure on targeted areas of the government’s bond redemption profile. This also partly mitigated the risk that the government might not be able to raise money to finance the budget deficit and repay debt at any scheduled point, or would have to do so at high cost.
In a written reply to a parliamentary question by Congress of the People (COPE) leader Mosiuoa Lekota, Mr Nene said the government was paying interest at an average coupon/interest rate of 10% on the debt that needed to be refinanced over the next four years. "It is projected that this debt will be refinanced at a lower average coupon/interest rate of 9%," he added.
Mr Lekota also wanted to know from Public Enterprises Minister Lynne Brown what the final cost of the construction of the Medupi power station would be. The minister said the cost was reviewed on an ongoing basis and that the current approved cost to completion was R105bn.
"The most recent review of the costs is currently undergoing internal governance scrutiny. Should an increase to the current cost of completion be required, the (Eskom) board will seek the necessary shareholder approval," Ms Brown said.
She said the government was aware that the Medupi project might have cost overruns due to various factors
"Eskom is consistently incorporating techniques to improve performance and manage costs. The following main cost control measures have been implemented: the introduction of additional supervisory resources to manage construction interfaces and the quality of onsite construction activities and offsite fabrication works; strengthening of construction techniques; implementation of a robust claims management strategy; and improved project oversight and streamlined decision making."
Replying to a question by Inkatha Freedom Party (IFP) MP Narend Singh about the R30bn loan to Transnet by the China Development Bank for the parastatal’s locomotive programme, Ms Brown said the bank was considered to be preferable to other competing financial institutions because it offered Transnet secure and committed funding over a 15-year term that allowed Transnet to mitigate liquidity risk
"Most financial institutions could only offer a five to 10 year US dollar loan. The agreement will match the assets and liabilities profile, taking into account the useful life of the locomotives. The 15-year aspect of the deal is particularly important to Transnet," Ms Brown said.
The loan maintained the overall cost of debt within acceptable levels.
"By utilising Chinese funding sources, Transnet is able to conserve its use of domestic credit lines. It is a known fact that when there is a credit crisis most investors avoid lending to emerging economies. It diversifies Transnet’s funding sources. This confirms Transnet’s agility and innovation in raising the required funds for the market demand strategy. With these agreements, Transnet is taking the lead in giving effect to SA’s Brics (Brazil, Russia, India, China, SA) commitments," Ms Brown said.
Nhlanhla Nene. Picture: TREVOR SAMSON
THE government switched R203bn short-term debt in the form of domestic bonds for longer-term debt between 2008-09 and 2014-15, Finance Minister Nhlanhla Nene said on Friday.
He said the bond-switch programme was intended to ease pressure on targeted areas of the government’s bond redemption profile. This also partly mitigated the risk that the government might not be able to raise money to finance the budget deficit and repay debt at any scheduled point, or would have to do so at high cost.
In a written reply to a parliamentary question by Congress of the People (COPE) leader Mosiuoa Lekota, Mr Nene said the government was paying interest at an average coupon/interest rate of 10% on the debt that needed to be refinanced over the next four years. "It is projected that this debt will be refinanced at a lower average coupon/interest rate of 9%," he added.
Mr Lekota also wanted to know from Public Enterprises Minister Lynne Brown what the final cost of the construction of the Medupi power station would be. The minister said the cost was reviewed on an ongoing basis and that the current approved cost to completion was R105bn.
"The most recent review of the costs is currently undergoing internal governance scrutiny. Should an increase to the current cost of completion be required, the (Eskom) board will seek the necessary shareholder approval," Ms Brown said.
She said the government was aware that the Medupi project might have cost overruns due to various factors
"Eskom is consistently incorporating techniques to improve performance and manage costs. The following main cost control measures have been implemented: the introduction of additional supervisory resources to manage construction interfaces and the quality of onsite construction activities and offsite fabrication works; strengthening of construction techniques; implementation of a robust claims management strategy; and improved project oversight and streamlined decision making."
Replying to a question by Inkatha Freedom Party (IFP) MP Narend Singh about the R30bn loan to Transnet by the China Development Bank for the parastatal’s locomotive programme, Ms Brown said the bank was considered to be preferable to other competing financial institutions because it offered Transnet secure and committed funding over a 15-year term that allowed Transnet to mitigate liquidity risk
"Most financial institutions could only offer a five to 10 year US dollar loan. The agreement will match the assets and liabilities profile, taking into account the useful life of the locomotives. The 15-year aspect of the deal is particularly important to Transnet," Ms Brown said.
The loan maintained the overall cost of debt within acceptable levels.
"By utilising Chinese funding sources, Transnet is able to conserve its use of domestic credit lines. It is a known fact that when there is a credit crisis most investors avoid lending to emerging economies. It diversifies Transnet’s funding sources. This confirms Transnet’s agility and innovation in raising the required funds for the market demand strategy. With these agreements, Transnet is taking the lead in giving effect to SA’s Brics (Brazil, Russia, India, China, SA) commitments," Ms Brown said.
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