STATE ENERGY company, the ESB is borrowing €2.5 billion to pay for its takeover of fellow utility Northern Ireland Electricity (NIE) and to boost its cash resources.

The ESB recently announced that it has agreed to buy NIE, which controls the North’s electricity transmission and distribution networks, from its owner, Viridian, for €1.25 billion.

The company signalled at the time that it would borrow the cash to fund the deal. Yesterday, the ESB said that it has agreed new credit facilities with a syndicate of Irish and international banks.

The facilities include a €970 million term loan to fund the NIE deal, and two revolving loans totalling €1.5 billion, which will be the company’s main source of standby cash. The revolving facilities replace an existing agreement with a group of banks that is due for repayment in 2012.

A number of the banks who are providing the existing facility will be parties to the new deal. The lenders involved include AIB and Ulster Bank as well as Bank of America, Barclays, Citi, Santander and HSBC.

The ESB is taking over NIE’s debts and its agreement to buy the company is conditional on those liabilities, which include a €211 million eurobond, being refinanced.

The ESB has debts of around €2 billion, including the revolving facility that the new agreement announced yesterday will replace.

The group has a long-term €15 billion investment plan and has said that it intends borrowing up to €6 billion of that sum.

Over the last few years, it borrowed through bond sales in both euro and dollars to international financial institutions. The company intends getting a credit rating later this year.

Once the NIE purchase goes through, the ESB will own the North’s national grid, the backbone of the electricity network, which transmits power from generating stations, and the distribution network, which delivers power to customers’ homes and businesses.

The deal means the ESB will control over €7 billion worth of transmission and distributions assets.

The ESB will not manage the network. This is done by the System Operator Northern Ireland, which is owned by Eirgrid, the State company that has been managing the Republic’s national grid since 2006.

NIE, which employs 1,300 people, will continue to operate as a standalone business, with a separate brand, within the ESB group.

Viridian is one of the ESB’s rivals. It owns Huntstown Power, which operates two generating plants in north Dublin, and Energia, which supplies electricity to business and industrial customers.

Arcapita, an investment fund owned by the middle eastern state of Bahrain, owns Viridian. It attempted to sell the entire group in 2008 before the banking crisis intervened.

Arcapita intends using the proceeds of the NIE sale to boost Viridian’s balance sheet. It will continue to own NIE Supply, a regulated electricity supplier to 800,000 residential and business customers in Northern Ireland, and Power Procurement, another regulated business, with 1,500 mega watts of generating capacity.