Escom’s K30bn debt to DBSA restructured

Escom’s 70 million rands (K30 billion) loan owed to the Development Bank of Southern Africa (DBSA) has been restructured into a local currency loan, enabling the power supplier to save 1.5 million rand (K57 million) in monthly interest payment.

The debt restructuring by Standard Bank is one of the conditions which government agreed with the Millennium Challenge Corporation (MCC) in view of the $350 million compact programme aimed at revitalising Electricity Supply Corporation of Malawi’s (Escom) generation capacity.

The Malawi Government agreed that Escom should restructure its balance sheet and convert all debts into equity and repay all commercial debts, one of them being the DBSA loan.

Standard Bank, as part of the restructuring, paid a part of the loan on behalf of Escom and converted it into a Malawi kwacha loan, helping to cushion the utility company from risks associated with foreign currency volatility and interest.

Escom public relations manager Kitty Chingota has not responded to a questionnaire sent yesterday to comment on the impact of the move by Standard Bank and how this will help the parastatal financial viability.

Last year, government which wholly owns the utility company wrote off K12 billion debt which Escom had as one key step towards the entry into force of the US-funded MCC compact agreement.

This means that Escom could use the funds meant to pay the debt to improve its service delivery.

The DBSA loan was secured by a zero coupon note—a promissory note that pays at maturity the value of the note with no separate interest payment—issued by Investec, an international specialist banking and asset management group, in favour of Escom with a maturity value equal to the loan principal.

One of the roles of Standard Bank was to ensure that Escom gets the highest discounted value for the note which, as part of the restructuring, was being sold before its maturity in June 2019.

Standard Bank Malawi chief executive officer Andrew Mashanda said this shows that the bank has the capacity to advise its clients on how best to benefit from their money.

“The Escom transaction was voted the best restructured deal in Europe, Middle East and Africa because Standard Bank’s investment banking team structured and negotiated the prepayment with DBSA without any break costs being applied,” he said.

Standard Bank has since won the 2013 Europe, Middle East and Africa (Emea) finance award.