Bloomberg News

Zesco of Zambia Seeks $2 Billion in Debt From U.K., U.S.

December 03, 2012

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, Managing Director Cyprian Chitundu said.

Standard Bank Group Ltd. of South Africa is advising the company, which met investors in London, Boston and New York, Chitundu said in an interview on Nov. 29 in Livingstone, in the south west of the country. It may also sell a Eurobond similar to the $750 million raised by the government in September, he said.

“We are probably talking $1 billion, probably even $2 billion,” Chitundu said on the sidelines of 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 metal prices. The price of copper traded on the London Metal Exchange has risen almost fivefold in the last decade.

Zambia operates hydropower plants on the Kafue River and at the Kariba dam, which lies on the Zambezi River. The country has about 1,970 megawatts of installed electricity generation capacity, 99 percent of which comes from hydropower. It intends to reduce this to 60 percent by 2015 with the introduction of privately owned coal-fired plants, also reducing Zesco’s share of the mix from over 90 percent this year. Most of the remainder comes from imports.

Doubling Up

The southern African nation will double generation capacity by around 2017 to remove the 250-megawatt peak shortfall it is suffering this year and allow the economy to expand, Mines, Energy and Water Resources Minister Yamfwa Mukanga said in a Nov. 29 speech in Livingstone, which straddles the Victoria Falls on the border with Zimbabwe.

Zambia’s power shortage will disappear by January 2014, when the Kariba North Bank expansion starts producing electricity, Chitundu said.

Power prices need to rise to justify the expansion of generation capacity, he said. Zesco applied to the Energy Regulation Board on July 27 to increase tariffs by an average 26 percent. The regulator has yet to decide on the increase, which was due to come into effect on Nov. 1.

“We’ve lost a lot of revenue,” because of the delayed decision, said Bestty Phiri, a spokesman for Zesco. “We had planned for it, and now all our plans are being put on ice,” he said in the same interview. Phiri expects the regulator will reach a decision by the end of the year.

No Decision

The Energy Regulation Board has no indication when it will decide on the tariff, spokeswoman Agnes Phiri commented in an e- mailed reply to questions. The regulator’s board appointed George Chabwera chairman on Nov. 27. Chabwera is the managing director and chairman of Associated Fire Services Ltd.

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, last year issued $1.75 billion of bonds maturing in January 2021. The yield on the debt has fallen 156 basis points this year to 3.92 percent.

Zambia’s kwacha has declined 2.1 percent against the dollar this year, trading at 5,230 by 12:01 p.m. in Lusaka.

Zesco’s management team has already visited London, talked to investors in Boston on Nov. 29, and ended with meetings in New York on Nov. 30, Chitundu said.

The company also plans to list on the Lusaka Stock Exchange within two years, he said.

To contact the reporter on this story: Matthew Hill in Lusaka at mhill58@bloomberg.net

To contact the editor responsible for this story: Antony Sguazzin at asguazzin@bloomberg.net


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