Renee Bonorchis
BANKERS from London to Frankfurt and New York are on a charm offensive in Africa. Their goal: convincing governments to keep selling debt as first-half issuance slows from a five-year high.
Standard Chartered, Deutsche Bank and Citigroup are among those seeking to drum up deals to satiate investor demand for higher-yielding securities. Sub-Saharan African countries sold a record $16 billion (R195bn) in Eurobonds last year, taking advantage of record low dollar-borrowing costs to fund infra- structure from roads to power projects.
“The outside world is long on capital and short on opportunities, while it’s the opposite in Africa,” Miguel Azevedo, the head of investment banking in Africa for Citigroup, said in an interview. “We’ve helped raise long-term dollars for Nigerian and Moroccan banks. That went very well and we’re now getting mandates from talks that started three years ago.”
Sub-Saharan Africa bond sales excluding South Africa have dropped 35 percent to $3.15bn this year, compared with the six months ended June 2014, which marked the best first half since 2011 as Kenya debuted $2bn of securities and Zambia issued $1bn, according to data.
Things are poised to perk up. Ghana, Rwanda, Senegal and Zambia are considering further offers, while Tanzania and Angola plan to enter international capital markets.
Debt market rout
Global emerging-market issuance declined 14 percent this year amid a rout in world debt markets as investors balked at record-low yields from Asia to Europe prompted by speculation the Federal Reserve is preparing to raise interest rates. That didn’t deter investors who sought six times the amount offered in the June 9 sale of Gabon’s $500 million 10-year Eurobonds, which were issued at a yield of 6.95 percent.
All African countries should consider debt sales, Jan Dehn, the head of research at Ashmore Group in London, said in an interview.
“I don’t think a lot of the African countries have fully reached that level of sophistication yet where they are making the bond markets work to their advantage completely.”
The continent’s capital markets would deepen and attract more foreign investors if more sovereigns were to obtain credit ratings, while existing issuers could sell longer-term maturities, helping to increase the number of products that traders can use, such as swops and other derivative instruments. The longest-dated bonds for Nigeria, the continent’s biggest economy, are 19 years away from maturity, compared with South African bonds.
Longer curve
“Sovereign debt needs a longer curve and governments in Africa need to be rated,” Diana Layfield, the head of Standard Chartered in Africa, said in Cape Town. Layfield ranked sovereign finance as one of the bank’s four biggest priorities across the continent this year.
Topping the sub-Saharan Africa deal table is Accra-based Cal Brokers, which helped STX Engineering & Construction Ghana raise $1.5bn.
Deutsche Bank, which ranked No 1 with $2.08bn of transactions in 2014, is second, after being credited with managing part of Gabon’s $500m issuance and Ivory Coast’s $1bn sale in February.
Ghana, Kenya and Tanzania are among African governments that need money to build infrastructure that keeps pace with their growing economies and middle class.
Rwanda said on June 19 that it planned to return to international capital markets this year to raise funding for infrastructure projects, while Zambia said on June 17 it was preparing to raise as much as $2bn in Eurobonds to finance its 2015 deficit.
And it’s not only banks from outside Africa seeing opportunities on the continent: Ismail Douiri, the co-chief executive officer of Casablanca-based Attijariwafa Bank, is also hunting for deals.
“We’re advising governments on structuring their local currency financing to build yield curves and boost capital market activity,” he said in an interview in Cape Town.
“This is an additional revenue opportunity for us.” – Bloomberg