Zesco Ltd Zambia’s state-owned power utility, has sent managers to the U.K. and the U.S. in a bid to raise as much as $2 billion in debt from investors there, Managing Director Cyprian Chitundu said.
Standard Bank Ltd. is advising the company, which met investors in London, Boston and New York, Chitundu said in an interview on November 29 in Livingstone.
“We are probably talking $1 billion, probably even $2 billion,” Chitundu said at the Zambia International Investment Forum.
Zesco plans to spend on average $1 billion a year over the next five years as it seeks to end a power shortage that has led to blackouts across Africa’s biggest copper producer, preventing the mining industry from gaining the full benefit of higher metals prices, with copper rising 6.8 percent in the third quarter.
The utility is also considering raising finance through a Eurobond, similar to the $750 million raised by the government in September, he said.
Zambia is rated B1 by Moody’s Investors Service, the fourth-highest junk rating. Eskom Holdings SOC Ltd., the South African power utility that’s rated four steps higher, issued $1.75 billion of bonds maturing in January 2021 last year. The yield on the debt has fallen 151 basis points this year to 3.97 percent.
Zambia’s kwacha has declined 3.8 percent against the dollar since June 30, trading at 5,223 by 3:45 p.m. in Lusaka on November 30.
Zesco’s management team has already visited London, talked to investors in Boston on November 29, and ended with meetings in New York on November 30, Chitundu said.
The company also plans to list on the Lusaka Stock Exchange within two years, he said.
[Bloombergbusinessweek]
By the time this government is out of Power Zambia would be owing more than we owed before we went into the HIPC mode. ZESCO has no capacity to repay a debt of $3 billion. If the Government fear to borrow that big, why does this ZESCO MD think that he can borrow that much money himself and manage to pay back. The formula these guys are using to bring development is wrong. This is the one their cadres are using. Borrow and get things on credit when they know too well that they don’t intend to pay back because they have no capacity. I see a Greece in making here.
Brace for higher tariffs people.
Chitundu , you need to list the company on the stock exchange. Sell 49% of the company on the stock exchange that way you will raise capital without getting into debt. Besides investors are always comfortable dealing with public listed companies since their accounts are open to public scrutiny. Zesco has it is , is a black hole with very opaque operations and accounts. Please use the stock exchange to raise money!
Lubinda, your point is valid but what’s your advise to ZESCO management & the general public at large?
Yeah – OK…. If ZESCO can’t pay the money back, they shouldn’t borrow. On the other hand, if ZESCO can’t supply the nation with stable power (which they obviously cannot!), and $2bn is the cost, there is little choice other than to borrow since not making the investment will hold back the entire economy.
Simply put, ZESCO needs to find a way to make this work. Henry Ford was very right when he said if you need a machine and don’t buy it you will end up paying for the machine ten times over.
I think ZESCO should not borrow. This culture of borrowing will put us in big problems in future. For now, list on the stock exchange and raise the money through the selling of shares to the public. Secondly, raise the electricity tarriffs on the mines. These guys consume most of the electricity produced yet you charge them very little in comparison to the household consumers. Thirdly, you can improve compliance through checks particularly in compounds where some houses connect to electricity free of charge. I once saw houses in Chaisa where 4 where connected to electricity yet were not paying, and the only prepaid meter was connected to only one house in the yard. Fourthly, reduce on exporting electricity especially when u know that the local market has not been sufficently supplied
After what PF did to ZAMTEL, I doubt Zesco will be convincing enough to be able to raise that kind of money. Those people will be thinking about the security of their credit with ZESCO, whether Sata will not wake up one day and say don’t pay them or he might fully nationalise ZESCO ending up with them losing their money. THe type of leaders you have in Zambia. I will be surprised if they will raise that money. $2billion dollars is not a lot of money, Zesco could have easily raised it from Zambian and regional development banks, but those banks do not have confidence – simple.
All the more reason to list on the LuSe; this will make ZESCO less susceptible to government interference which can be negative at times. A possible scenario could be gov retains a 15 – 20 percent stake, offload about 45 to zambian public and the rest to foreign investors. You can play around with the exact numbers but thats the gist of it. The listing will raise capital for improvement and expansion. A new board will have to be elected with equal representation for all three classes of shareholders; government, foreign and citizen investors. Needless to say, frequent and impartial audits of finances are in ordet to insure a corruption free operation. Eventually, a R&D dept can be established for obvious reasons.
@JFK, the solution for Chitundu to do is straight forward. Simple business will let him know that in order to raise the amount of profit one has, you can either raise revenue or simple reduce costs.
Takuli Nkongole Lelo!
I’m also learning that if government institutions could pay all what they owe ZESCO, that could also help.
These guys want to give ZESCO away on a silver plate. They know as well as the investors do that they can’t pay back 3Billion dollars. Instead what will happen is that the investors will give them the debt on a flawed unacheivable repayment plan and when Chitundu fails to pay back otyhey will swoop in and finish ZESCo off. I know they have run out of ideas but this type of sell-out mentality is not the way to go. Why are you scared of the mines? Make them pay proper tariffs and if that fails sell us Zambians the shares. We will buy them. DO NOT I REPEAT DO NOT PARTAKE OF THIS SELLING OUT OF ZAMBIANS. Gosh its like all the good work – getting us out of debt is unravelling under this governement. Under PF we are going back to being highly Indebted beggars. I am scared for ZAMBIA!
@ #10, shenya-lu-fiyele:
Great point – before borrowing, all GRZ offices, residences, etc. (from State House on down including the GM of ZESCO) should be put on prepaid meters with immediate effect. That’ll teach ’em not to pay!
The problem we have is that we have incompetent people running our government. At this rate they are going, they will not be able to solve this problem in the next 10 years. To make matters worse, they are advice-proof and will not take free advice.
The solution to our energy problems is to bring in 2 or 3 more players in this sector to compete with marabishi zesco.
Why is he sending his managers why can’t he go on the milk round around the world and what type of statement is this;
“We are probably talking $1 billion, probably even $2 billion,” Chitundu
There is a very big difference between $1Billion and $2Billion…this man should be sacked.
Its a good move, as it will be able to pay back the loans from the profits, as long as it is used to the intended purpose, power generation will increase and that will mean exporting to the neighboring countries and hence they can easily pay back the loans without using TAX payer’s money.
@16 browser, for how long as this company been borrowing and what tangible improvements have been done to it? nothing. we just end up paying off these loans through increased tariffs. most of these loans end up in their pockets and through loans which they do not even pay back. and at times, govt use the same entity to siphon money for their pockets.
I hope the sis the homework well…I think the should have borrowed from the Zambian people..Praying this is a rumour
I fail to understand why the govt can not offload some stake of ZESCO onto LUSE so that they can get the money locally from the guys that are interested in the stock market…..Economists help me….is it not viable/feasible???? All we will hear one day is the entire ZESCO has been sold off when Zambians can themselves own ZESCO.
Another scheme to un-officially sell Zesco to foreign investors. GOVT is the biggest debtor who needs to settle their bills, then come the City councels and finally the Zesco employees. Has the government not learnt from Zambia Railways, ZANACO and ZAMTEL. Why do you want to sell such organizations at give away prices…. Pathetic is all it is.
Stop wasting money first….
You need another Prof. Clive Chriwa there, fresh brains!