South Africa publishes terms of €600m climate loans from France and Germany

JOHANNESBURG, Nov 10 (Reuters) – South Africa on Thursday released the terms of two climate loans totaling 600 million euros ($596.7 million) from French and German development banks , claiming that they were significantly cheaper than market borrowings.

The 300 million euro loan from the French AFD has a duration of 20 years and a grace period of five years. The interest rate is 3.6%, or six-month Euribor plus 129 basis points (bps), the South African National Treasury said in a statement.

The €300m loan from Germany’s KFW is also for 20 years, with a five-year grace period. Its interest rate is 3%, or six-month Euribor plus 69 basis points, the Treasury said.

Both loans aim to support the country’s transition from coal to cleaner energy sources.

Last week, on the eve of the COP27 summit, President Cyril Ramaphosa unveiled a climate investment plan requiring some 1.5 trillion rand ($84.4 billion) over the next five years. Countries like France, Germany, Britain and the United States pledged $8.5 billion last year at COP26 to help accelerate South Africa’s switch to coal.

The Treasury called the AFD and KFW loans “highly concessional” and said they were already reflected in last month’s medium-term budget gross financing need.

South Africa’s dollar-denominated sovereign bond maturing in 2044 is currently yielding around 8.6%, according to Tradeweb data, suggesting it would be much more expensive for the government to borrow through the international bond market.

“By reducing debt service costs, the South African government is creating more fiscal space for social and other priorities,” the Treasury said.

Under Ramaphosa, Africa’s most industrialized nation has attempted to restore the health of its public finances after a decade of steep debt accumulation.

The medium-term budget showed a better fiscal outlook, with deficits shrinking faster than before and debt stabilizing at a lower level.

($1 = 1.0055 euros)

($1 = R17.7708)

Reporting by Alexander Winning and Rachel Savage; Editing by Frank Jack Daniel

Our standards: The Thomson Reuters Trust Principles.

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