October 31st, 2014 by Tom Minney
China rolling stock for Ethiopia (photo from: www.tigraionline.com)
The Ethiopian Government recently closed a $865 million financing package to fund part of the development of the country’s giant new railway infrastructure. One banker on the deal was reported by Reuters as saying: “This is a huge financing for Ethiopia, it is the first commercial deal of this size we have seen. Banks have a growing appetite for the Ethiopian market and we expect to see more deals like this.”
ERC is busy with 8 railway routes stretching 5,060 km, at a cost of $2m-$3m per kilometre. This includes rebuilding the Addis Ababa-Djibouti railway and lines heading north and south-west. A 36.5km mass transit railway is also being built in the capital, Addis Abeba.
The latest financing is split between a $450m commercial loan for 7 years, which includes a syndicate of lenders from Europe, Africa, the Middle East and the US, and pays 375 basis points over Libor. There is also a $415m 13-year loan backed by the Swedish Export Credit Guarantee Board (EKN) with Eksport Kredit Fonden (EKF) and Swiss Export Risk Insurance (SERV) export-credit agencies also included. The financing will be used to build the Awash-Weldia/Hara Gebeya Railway Project, one of the key railway corridors that will form part of the national railway network and connect northern and central parts of Ethiopia.
Turkey’s global rail company
Parastatal Ethiopian Railways Corporation (ERC) is undertaking the project construction, which will be built in the next 3 years. Turkey’s Yapi Merkezi Insaat ve Sanayi AS is the appointed contractor on the project and will design and construct the 389km railway line starting north east of Awash and going north through Kombolcha to Weldia under a 3-year $1.7bn project signed with ERC in Dec 2012. It will connect with the Addis Abeba-Djibouti line being built and with the Woldia/Hara Gebeya-Semera-Dicheto-Elidar project which will connect northern Ethiopia with Tajourah port in Djibouti, according to this report.
Credit Suisse acted as co-ordinating commercial facility arranger and export credit agency facility lead arranger. Some of the loans have already been disbursed. In addition, Deutsche Bank was the mandated lead arrangers for the EKF financing ($181m), ING Bank for the EKN financing ($83m) and KfW IPEX-Bank for SERV backed facilities ($151m).
In addition, Turk Eximbank provided a parallel financing of $300 million for the Turkish goods and services under the same project. Yapi Merkezi is a leading transportation infrastructure company and built the Dubai Metro Project, Casablanca tramline and Ankara-Konya high-speed rail line.
The financing has also been arranged under the OECD Common Approaches for Officially-Supported Export Credits and Environmental and Social Due Diligence which commit OECD countries to taking environmental and social impacts into account when granting officially supported export credits.
China’s $3bn finance to reach Djibouti
Export-Import Bank of China has pledged loans totalling $3bn to support Chinese railway construction companies on the 756km line from Addis to Djibouti, according to this in-depth overview of Ethiopian and Chinese relations. It runs parallel to the abandoned Imperial Railway Company of Ethiopia track built between 1894 and 1917. China will also provide most of the rolling stock, including locomotives worth millions, according to this story in Financial Times.
India to add $300m
In June 2013, India’s Exim Bank approved a $300m loan at 1.75% interest to finance a link from Asaita (670km from Addis) to Djibouti’s planned port at Tajourah. Debo Tunka, deputy CEO and head of infrastructure development at ERC reportedly said: “The new line will be very important for Ethiopia because it will give us an access to a second port and boost economic activities in the country,” The credit will be released once feasibility studies are done and contractors are still to be appointed. Tajourah will have a dedicated terminal for shipments from Allana Potash which is developing a $642m potash in northeast Ethiopia, according to Bloomberg.
October 30th, 2014 by Tom Minney
China is to build a huge new port and special economic zone in Tanzania worth at least $10 billion. Construction is due to start on 1 July 2015 as the country bids to rival Kenya’s Mombasa as transport hub for East Africa and is also investing in road, railways and major developments in commercial capital Dar es Salaam, 60 kilometres south.
Last Sunday, 26 Oct, the construction agreement for the port and associated 22,000 acres zone was signed in Shenzhen, southern China, with Tanzanian President as witness. According to a statement from the Office of the President, reported on Reuters: “The Tanzanian Government signed a memorandum of understanding with two major international institutions … to develop the Bagamoyo economic zone”.
It was signed with
• China Merchant Holding International (CMHI, based in Hong Kong) which claims to be “the largest public port operator in China and… leading… in the global port industry”. and
• State General Reserve Fund (SGRF) of Oman, the sultanate’s biggest sovereign wealth fund.
An earlier report on website Aid Data said the agreements also covered CMHI building railway infrastructure leading up to the port and the economic zone. Initial financing was $500m in 2013, supplied by Export-Import Bank of China.
Dar es Salaam harbour. Photo: Tom Minney
A framework agreement between Tanzania and the Chinese port operator had been signed when Chinese President Xi Jinping visited Tanzania in March 2013, the first country on his African tour soon after his inauguration.
An official said it had taken time to set a start date for building work because of other negotiations about infrastructure to link the port to national transport networks. Li Jianhong, executive chairman of CMHI, asked Tanzania’s Government at the signing of the contract to remove obstacles that have delayed implementation. President Kikwete said in the statement: “We will do everything possible to ensure that this project takes off because it will bring enormous economic benefits to the entire country,” according to Reuters.
Separately, Tanzania and China on 24 Oct signed deals with Chinese firms worth more than $1.7 bn, including one to build a satellite city to ease congestion in Dar es Salaam, deepening Beijing’s ties with east Africa. China is financing a $1.2 bn natural-gas pipeline that will run 532 km and in 2011 China’s Sichuan Hongda Co Ltd signed a $3bn deal with Tanzania to mine coal and iron ore. The new port is expected to handle 20 times more cargo than the existing port at Dar es Salaam, according to Aid Data website. It will act as a hub for raw materials coming in and out neighbouring landlocked countries, as well as bringing Chinese manufactured goods into the region, according to this earlier investigative report.
The report also said there were questions after the new port was pushed through Parliament by the ruling party with little debate. Apparently Dar es Salaam port is underused and with enough capacity until 2016-2020 depending on traffic. Other ports such as Tanga in the North and Mtwara in the South are dormant. Bagamoyo is a historic town.
The Bagamoyo agreements include large container and vehicle facilities, combined with smaller scale dry bulk and multi-purpose terminals at Mwambani Bay. It plans to handle more than 20m containers per year and also includes construction of a standard-gauge railway link to the central corridor railway at Ruvu Station and an extended link with the TAZARA railway. A highway to link the port to the Uhuru Highway that goes to Zambia will also be built.
China will have control of the port for 40 years. It provides access to 8 countries as Tanzania borders Mozambique, Malawi, Zambia, DR Congo, Burundi, Rwanda, Uganda and Kenya, with cargo uptake as far as South Sudan, The Comoro islands, Madagascar and the Seychelles. Journalist Shermax Ngahemera writes: “For China, the leading exporter in the world, it is an ideal site… China is widely involved in extraction industry in central Africa, especially in Zambia, the DR Congo and Angola. Cargo to and from those countries can therefore easily be diverted to Bagamoyo. In 2013 trade between Africa and China reached more than $200bn.”
He dismisses claims that it could have military significance, quoting a senior retired Navy General pointing out that at 14metres it could not berth a submarine. He also quoted the African Development Bank which says transporting supplies in East Africa is more expensive than in any other region, due to inefficient operations at ports in the region, road checkpoints and border controls. Shipping to Tanzania is 25% more than shipping to the larger and more efficient ports in Southern Africa.
China built the TAZARA railway linking Tanzania and Zambia in the 1960s and 1970s.
There are more details on this blog.
October 19th, 2014 by Tom Minney
Johannesburg Stock Exchange (credit: JSE)
The Johannesburg Stock Exchange (www.jse.co.za) equity market scored a record number of 395,969 securities trades on 16 October. The total value was just over R24.6 billion ($2.2 bn).
The previous record of one day’s trading on the JSE Equity Market was just under 300,000 trades on, but the average number of trades per day during 2014 is approximately 176,000 per day on the equity market.
Leanne Parsons: Director Trading and Market Services at the JSE, says in a press release that the JSE’s trading systems handled the large number of transactions without any difficulty: “Records like this show that the JSE continues to provide a stable, credible and world class trading platform as well as access to a very liquid market with deep pools of capital.”
The JSE offers a fully electronic, efficient and secure market and is the world’s best-regulated exchange. It has world-class trading and clearing systems, settlement assurance and risk management. It has been a marketplace for trading financial products for 125 years, connecting buyers and sellers in equity, derivative and debt markets and is in the world top 20 exchanges for market capitalisation and a member of the World Federation of Exchanges (WFE).
October 13th, 2014 by Tom Minney
BRVM in Abidjan (photo: AfricanCapitalMarketsNews.com)
Total Senegal is bringing the first initial public offer (IPO) of shares to the growing Abidjan-based Bourse Regionale des Valeurs Mobilieres (BRVM) since 2010, with shares on sale until November. Parent company Total Outre-Mer is selling 8.9% of the shares in the oil products company , in a share offer that began 8 Oct and closes 7 Nov.
Reuters quotes Odile Sene Kantoussan, chief executive of brokerage company CGF Bourse, based in Dakar, saying: “This operation … consists of the divestment of 290,000 shares held by Total Outre-Mer in Total Senegal’s capital..The shares will be listed on the (BRVM) alongside 22% of the capital representing the stake of minority shareholders, bringing the floating capital on the Bourse to 30.9%. ” The ordinary shares each cost XOF 12,000 (CFA franc) equivalent to USD 23.19, with a minimum subscription of 5 shares, according to this announcement by Compagnie de Gestion Financière (CGF Bourse), which is sponsoring broker and Société de Gestion Intermédiation (SGI) in a syndicate of 20 brokers placing the shares. Initial priority is giving to investors in Senegal before extending across the CFA zone. The shares have XOF 1,000 nominal value according to the information memorandum available here. The transaction value is XOF 3.48 billion ($6.7million).
Total has already listed its Ivory Coast subsidiary among the 37 companies listed on the BRVM which trades securities from 8 nations across the West African region.
According to another news report by Agence Ecofin, Gabriel Fal, Chairman of the BRVM and Edoh Kossi Amenounve, CEO, hosted a ceremony for the offering on 10 Oct. It reports that the BRVM’s market capitalization has soared past XOF6 trillion ($11bn) driven by demand for Sonatel – the previous Senegalese listing in 1998 – and capital increases by subsidiaries of Bank of Africa group.
Gabriel Fal, Chairman of the BRVM (photo: BRVM)
In April Fal was reported to forecast other potential BRVM listings could include Ivorian banks, Banque Internationale pour l’Afrique de l’Ouest en Cote d’Ivoire and Societe Ivoirienne de Banque, 51% owned by Morocco’s Attijariwafa Bank, as well as Matforce, a Senegalese company which provides energy equipment, an insurance company based in Dakar and a Canadian gold mining company operating in Cote d’Ivoire.
After the sale and listing, Total Outre-Mer will own 23.1% and Total Africa Limited will own 46%.
See the CGF Bourse website
for details on the share offer.
October 10th, 2014 by Tom Minney
The Board of Directors of the Nairobi Securities Exchange appointed Andrew Wachira as the Acting CEO of the exchange, effective from 1 Oct 2014. Peter Mwangi left on 30 Sept, as reported on this blog. The process to recruit a permanent Chief Executive is ongoing.
According to the NSE announcement, lawyer Mr. Wachira has over 10 years’ experience at the Nairobi exchange. He has been the Head of Compliance and Legal Department, NSE since 2009. He has a Bachelor of Law Degree from the University of Nairobi and is an Advocate of the High Court of Kenya. He is a member of the Law Society of Kenya.
Board Chairman Mr. Eddy Njoroge said: “Andrew has been instrumental in the implementation of a number of key initiatives at the exchange. His experience, leadership skills and wealth of knowledge will ensure a smooth transition for the exchange. As we formalise the substantive recruitment of a Chief Executive, we are confident that he will execute this interim position commendably.”
History pic – Nairobi SE in 2009 (credit www.businessdailyafrica.com)
October 10th, 2014 by Tom Minney
The Nairobi Securities Exchange (www.nse.co.ke) is trading corporate bonds and Government of Kenya treasury bonds on an automated trading system. It marks another step forward for South Africa’s financial software development company Securities Trading & Technology Pty (STT), which also supplies the STT bond trading system used by the Johannesburg Stock Exchange (JSE), Africa’s most liquid bond market.
The new system allows on-line trading of debt securities and is integrated with the settlement system at the Central Bank of Kenya (CBK) for treasury bonds. It offers true delivery-versus-payment (DVP) to mitigate risk. In August 2014 the NSE increased the number of settlements in treasury bonds to 3 per day, with settlements at 11:00, 13:00 and 15:00 each day so that a bond trader can buy a Kenyan treasury bond and sell it the same day.
The new STT automated trading system (ATS) also is efficient, scalable and flexible, and supports trading in bonds that have been issued in different currencies.
Peter Mwangi, CEO of the Nairobi bourse, said in a press release: “This is a significant step towards the exchange’s goal of ensuring that the secondary market becomes more transparent and the price-discovery mechanism is beyond reproach.
“The multicurrency trading functionality of the new system means that foreign-denominated bonds can now be listed and traded on the NSE. With this development, we look forward to the listing of the Government of Kenya Sovereign Bond at the exchange.” He was referring to Kenya’s debut $2bn Eurobond that was successfully floated on the Irish Stock Exchange in June after attracting bids for 4 times the initial target.
Nairobi’s stock market was reported to be working with the Central Depository and Settlement Corporation (CDSC) and the CBK for settlements of corporate bonds.
It also follows the South African practice and allows reporting of bond prices by yield (i.e. the current interest rate to investors). According to an earlier report in Standard Media, Mr Mwangi said: “the bond trading system.. will allow reporting of bond prices by yield… Decision-making will be faster and this should spur further liquidity in the bond market.”
The STT system supports market-making, a 2-way-quote trading model, ability to integrate with regulators’ surveillance systems and ability to report transactions that are concluded over-the-counter (OTC) for purposes of settlement.
In enhancing the bond trading system, the Nairobi Securities Exchange acknowledges the vital role that a vibrant secondary market for active African bond trading continues to play in raising long-term capital for the Government and corporate entities. County governments can also use the same system to raise capital through issuing and listing county bonds.
Ms. Michelle Janke, Managing Director of Securities Trading & Technology said: “I am delighted to have partnered with the NSE, all teams have put in an enormous effort to take the market live”. The market went live on 26 September.
The Dar es Salaam Stock Exchange went live using the STT system on 27 June, as reported on this blog, after switching from Millennium IT system.
October 9th, 2014 by Tom Minney
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October 9th, 2014 by Tom Minney
Ethiopia’s Finance Minister Sufian Ahmed has been meeting international banks about a planned Eurobond issue for the end of this year or early 2015. The advisors are likely to be Barclays, Citi and BNP Paribas. The are currently no details on the amount to be raised but the duration is likely to be “at least 10 years”.
Finance Ministry spokesperson Haji Ibsa told Reuters: “We are aiming for late December to early January at the latest as the time for our debut into the international capital markets.. Bonds are very much part of the plan to improve infrastructure.” He mentioned plans for railway, road and power links with neighbours such as Djibouti and Kenya.
Earlier this year Ethiopia achieved favourable international ratings. Fitch rating agency assigned a long-term foreign and local currency Issuer Default Debt Rating (IDR) of “B” with stable outlook, compared with Kenya’s ‘B+’ which issued a heavily oversubscribed $2 billion Eurobond in June 2014, according to Reuters. Standard & Poor’s (S&P) assigned “B/B” foreign and local currency ratings and also said the outlook was stable, see our May story here.
The Economist Intelligence Unit remains less optimistic, giving Ethiopia a rating of CCC, but it says the bond is likely to prove attractive to investors, as have other African issues.
According to the EIU: “The financing of similar schemes under the country’s Growth and Transformation Plan (GTP) has already seen external debt as a percentage of GDP treble over the past five years, to an estimated 33.9% in 2013, and the government hopes that issuing a Eurobond will both diversify sources of credit and help rebrand the country, thus attracting more international companies to operate there.
“If successful, the bond will reduce Ethiopia’s reliance on domestic borrowing, and suggests a slight moderation of the government’s previous determination to finance the 2010-15 GTP, and any successor programme, domestically, largely via direct central bank financing and by forcing private banks to purchase Treasury bills. However, it is unlikely that this will translate into a broader rethinking of the government’s commitment to a state-driven growth model or its insistence that certain key sectors, including banking and telecommunications, remain off limits to foreign firms. It would appear, therefore, that limits will remain on the government’s stated aim of rebranding the country and attracting a broader range of foreign operators.”
The EIU refers to Ethiopia’s strong economic growth rates, market size and substantial untapped resources. “However, we continue to flag the possibility that the government will struggle to fund its substantial infrastructure requirements and that, in the medium to long term, the authorities may have to cut spending significantly or return to the IMF for financing.”
In May Fitch was upbeat “Fitch expects real GDP growth of 9% in 2014 and 8% in 2015. Ethiopia’s growth over the medium-term can be sustained by large, untapped resources, including large hydro-electric potential”. However, it also warned about private sector weakness and inadequate access to domestic credit as limiting growth potential over the medium-term as public investment slows.”
October 8th, 2014 by Tom Minney
South Africa’s Johannesburg Stock Exchange (www.jse.co.za) has launched currency future instruments which will help investors and businesspeople looking to hedge against African currency movements. The 3 new currency futures are the first to track exchange rate between the rand (ZAR) and Nigeria’s Naira (NGN), Kenya Shilling (KES) and Zambia Kwacha (ZMW).
The move will allow investors, importers and exporters to protect themselves against the currency movement in the foreign country. The JSE has partnered with Barclays Africa and specialist brokers, Tradition Futures, to bring this new offering to market.
A press release from the JSE quotes Andrew Gillespie of Tradition Futures: “It is a groundbreaking development to have a transparent, independent, well-regulated platform to mitigate or assume FX (foreign exchange) risk in these African countries, against any other currency of their choice – that does not prejudice anyone, irrespective of size, domicile or nationality.
Representatives of JSE, Reserve Bank, Kenya and Zambia open trading in African currencies (credit: JSE)
“The ability to transact anonymously, through specialist brokers such as Tradition Futures, and to have access to full and fair, timeous price discovery is an international benchmark requirement for a developed market. This allows for a level and fair playing field, where the best price is available to all, without bias or favour, which is a significant facet and feature of this market in African FX on the JSE.”
Guide to African currencies (see www.charterresource.org/african-currencies)
The JSE already offers futures against the ZAR in: USD (contracts of $1,000), Euro, Sterling, Australian dollar, Japan Yen, Canada dollar, New Zealand dollar, Chinese Renminbi, Swiss Franc, Botswana Pula and a couple of custom instruments. See the helpful brochure available here
How they work
A currency futures contract is an obligation to buy or sell an underlying currency at a fixed exchange rate at a specified date in the future. For example, a futures contract can give an investor the right to buy USD at ZAR10 per USD1 at the end of December. One party to the agreement is obligated to buy (longs) the currency at a specified exchange rate and the other agrees to sell (shorts) it at the expiry date. A futures contract is therefore an agreement between two investors with different views on the way or extent a currency will move.
The underlying instrument of a currency future contract is the rate of exchange between one unit of foreign currency and the South African rand. The value of the futures contract moves up and down with this exchange rate – the level of the exchange rate determines the value of the futures contract. Currency futures contracts therefore allow participants to take a view on the movement of the exchange rate as well as to hedge against currency risk. Currency futures are used as a trading, speculating and hedging tool by all interested participants.
The new JSE futures contracts will provide the market participants with the ability to get exposure on the JSE to the exchange rate between the USD and the Zambian, Kenyan and Nigerian currencies through trading synthetic cross-currencies. For example, investors can get exposure to the exchange rate between the USD and the KES by trading both against the ZAR. To promote cross-currency trading the JSE will charge trading fees on only one of the foreign trade logs and not both.
Boosting African trade
The currency futures were launched on 3 October. The press release quotes Warren Geers, General Manager: Capital Markets at the JSE: “The JSE is very excited about this new groundbreaking initiative as we have been working on this strategy for 2 years. With Africa being a global investment destination it makes sense for the JSE as a major exchange player in Africa to be involved in providing appropriate products to mitigate currency risk and exposure when dealing in Africa.”
Trade statistics from the South African Revenue Service (SARS) show trade between South Africa and Nigeria totalled R34.4 billion, between South Africa and Zambia was nearly R18bn, and between South Africa and Kenya amounted to R4.6bn for for January-July 2014.
For more information, look at the currency futures details on the JSE website.
October 7th, 2014 by Tom Minney
The framework for linking the capital markets of West Africa was recently published. First step is direct market access (DMA), allowing a stockbroker on one West African exchange to transact directly on the Nigerian market through the order-management system of an approved Nigerian stockbroker.
The Nigerian Stock Exchange has outlined how this would work in its capital market. The initiative is part of a West African Capital Markets Integration (WACMI) programme, aiming to establish a harmonized regulatory environment for issuing and trading securities across West Africa. The overall programme will be rolled out in 3 phases:
Phase 1: Sponsored Access
Phase 2: Direct Access by Qualified West African Brokers
Phase 3: Integrated West African Securities Market.
CEO Oscar Onyema shows top managers of NASDAQ OMX the NSE trading floor. (Credit: businessdayonline)
The first phase will allow brokers in member countries of WACMI to trade securities and settle in markets other than theirs through local brokers in those markets. In Nigeria, this means that stockbrokers that are not registered market operators in Nigeria can participate in the market through remote access to the NSE’s trading facility through a local Dealing Member firm (stockbroker) licensed by the exchange.
This Day newspaper in Nigeria reports that Oscar Onyema, Chairman, West African Capital Markets Integration Council (WACMIC) and CEO of the NSE, said WACMI aims to ensure successful integration of the various stock exchanges in the West African sub region. Achieving integration would enable momentous growth in region’s markets and would attract investment flows, while creating a much larger market for local and international businesses:
“Additionally, integration will enable the movement of capital within the region, creating flexibility for issuers looking to raise capital and investors looking to invest across member states. Furthermore, integration would speed up the development of our various domestic financial systems, promoting increased competition and innovation, as well as offering opportunities for risk diversification.”
Direct market access – the mechanics
The current direct market access programme is only available to NSE dealing member firms with Order Management System (OMS) vendors been certified by the exchange.
Phase 1 is in two sub-phases: Direct market access (DMA) and sponsored access (SA). The current announcements relate to the first, direct market access. This means that a Sponsoring Member firm in Nigeria can allow a Sponsored Participant who operates in a WACMI member country to the NSE’s trading system under the SM’s trading codes via the SM firm’s order management system and using the dealing member firm’s infrastructure.
In order to allow direct market access to a sponsored participant (SP), the sponsoring member (SM) must notify the NSE of the DMA and should get a “no objection” letter. The application process includes giving full address and contact person for the SP and a “Letter of Good Standing” in respect of the sponsored participant (SP) issued by the domestic securities exchange where the SP is an active stockbroking member.
The notification of DMA should also include a copy of the risk policy/framework that the SM plans to use in monitoring the SP’s trading activities. If it later makes any changes to the risk framework it must tell the NSE’s Broker Dealer Regulation department within 1 business day via email or letter format. It will also include the name and registered or business address of the vendor providing the order management system to the sponsoring member (SM).
If the exchange has an “objection” it will advise the sponsoring member of the problems and can ask for more information, before granting the “no objection”.
The sponsoring member will also help the sponsored participant to establish settlement accounts either with a custodian or with the Central Securities Clearing System plc, which has been the clearing and settlement house of the Nigerian capital market and the NSE since 1997. Once this is set up, the SM will also inform the NSE about it.
The second step, sponsored access, will mean that the SP uses the exchange’s infrastructure. It will submit orders to the exchange’s trading system directly, but under a SM firm’s trading codes and without passing through a SM firm’s order management system. Instead, the SP’s orders pass through a series of validation checks carried out by the exchange and the orders are monitored by the SM firm as they happen (in “real-time”).
Sponsoring broker responsibility
According to the notice, issued by Olufemi Shobanjo, Head of Broker Dealer Regulation at the NSE: “It is imperative to emphasise that Dealing Member firms (the Sponsoring Members) will ultimately bear any risks associated with, and will be held liable for any infractions resulting from the Sponsored Participant’s (SP) trading activities. In line with this, The Exchange may request any information from a Dealing Member firm, regarding its trading activity.”