A boost for bonds

By By Nat Mankelow | Published:  28 December, 2009

Indications that liquidity and demand will return for African sovereign issuance bode well for new players looking to boost their financing options

This year’s bond sales from Kenya and Nigeria have increased the scope for potential deals from the Ivory Coast and Angola – the latter hinting of a record-breaking $4bn bond to come in 2010 – as emerging market debt investors race to access assets that have a relatively modest risk of default matched by a healthy spread.

A KSh15bn ($200m) 10-year public infrastructure bond issued by the Kenyan Electricity Generating Company last month caught neighbouring debt markets’ attentions because it was the first bond to be traded on Nairobi Stock Exchange’s automated system, and because it was oversubscribed by 45 per cent. Importantly it was another indication the bond market could complement the use of overseas loans and, longer-term, be an adequate substitute for financing projects such as road- and rail-building.

Attending the launch, Kenyan Prime Minister Raila Odinga announced to a packed trading floor that the KenGen issue demonstrated that, “we can raise most of the funds needed to realise the goals of Vision 2030 through our own capital markets”. Vision 2030 is a state-sponsored project to increase the electricity supply beyond the 15 percent national coverage estimated by KenGen and which falls to four per cent in rural areas.

In Nigeria, Guaranty Trust Bank Plc, the country’s third-biggest lender, is putting the finishing touches to a NGN200bn ($1.3bn) five-year bond it says will boost capital available for infrastructure loans, which had been put on the backburner because of the global credit crisis. First National Bank of Nigeria said its NGN500bn bond will be used for acquisitions both home and abroad following central bank regulations which now require its banks to have greater provisions for balance sheet losses following a hit of $10bn incurred from failed loans made during the credit crisis.

“GTB are a top-tier bank and actually a winner from the crisis. The dollar-denominated bonds it issued are trading close to par and these guys have a low default risk and it is a conservative bank,” notes Kevin Daly, emerging market debt portfolio manager at Aberdeen Asset Management, a London-based investor with around $4bn in EMD. Mr Daly was at an investor road show in London this year co-hosted by JP Morgan and GTB when the Lagos bank indicated it would be tapping the bond markets once again. “It was a good presentation and encouraging that a Nigerian bank was teaming up with JP Morgan to host bond investors - the more exposure the better.”

Improved investor relations and transparency aside, Nigerian and Kenyan debt markets remain low-key compared to Western Europe and also placed against South Africa, which is the capital market powerhouse of the region.

Nevertheless, ground has been made up since 2007, when a number of potential bond deals in sub-Saharan Africa were held back as credit began to dry up in the US and Europe. Bond investors were not buying anything at the time, even investment grade issuance in the West, though Ghana successfully sold $750m of eurobonds, the first to do so in sub-Saharan Africa and Gabon upped the ante with a $1bn 10-year bond weeks later.

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