Rwanda to fund airport and power with $1bn Eurobond in 2015

Rwanda plans to return to Eurobond markets in 2015 and raise up to $1 billion for infrastructure, including an airport and power plants. As global interest rates stay low, sub-Saharan African countries have raised $6.4bn through debt issues in 2014, compared to $9.7bn in all 2013, according to Bloomberg news agency last week, citing figures from Standard Bank Group Ltd. “the continent’s biggest lender”.
Rwanda plans to upgrade the main international airport outside Kigali, to build a 150-megawatt geothermal power plant and to fund a methane-fired power project to produce up to 100 MW by extracting methane gas from under Lake Kivu.
Bloomberg reported last week that President Paul Kagame said in an interview the country felt investor demand was still strong, after its first $400 million bond in April 2013 was more than 8x oversubscribed: “We might go for double that or more, up to $1 bn.”
“People who want to see Africa develop come to Rwanda particularly because we have set up a very good environment that makes things work for us and for our partners who come invest with us.” Economic growth has averaged 7% annually over the last 5 years and the International Monetary Fund (IMF) forecasts growth of 7.5% in each of 2014 and 2015, according to Bloomberg.
The agency says that Rwanda’s non-concessional borrowing limit, set by the IMF, is $250m for the 2014-15 fiscal year. It quotes Samir Gadio, head of Africa strategy at Standard Chartered Plc , saying the IMF has raised the ceiling when African countries could turn to offshore markets at cheap interest rates: “But the other consideration is that external debt sustainability should not be jeopardized… Given the size of the economy, a $1bn Eurobond would represent around 13% of GDP, which is significant.”
The interview came on 5 Aug in Washington DC when US President Barack Obama highlighted $33bn in commitments to Africa, including $14bn in investments from companies such as General Electric Co. President Kagame said: “It’s a very significant step in the relationship between Africa and the U.S… If things are done right, the relationship, the partnership between the United States and Africa, has the potential to bypass that relationship between Africa and Europe. Also the relationship between Africa and China.”

Kigali under Vision 2020 (photo: www.TopBoxDesign.com)

Kigali under Vision 2020 (photo: www.TopBoxDesign.com)

9 African IPOs in first half of 2014 raise $808m, passing all 2013

pic: Tom Minney

Arabian Cement IPO on Egyptian Exchange in May was 18x oversubscribed. pic: Tom Minney


Initial public offers (IPOs) on African stock exchanges for the first half of 2014 has raised capital totalling $808.5 million, compared to a total of $757.5m raised throughout 2013. The data show there have been 9 African IPOs in 2014 to 30 June, compared to 18 in 2013 and 10 in 2012 on stock exchanges in Casablanca, Dar es Salaam, Johannesburg, Nigeria and Tunisia when the total raised was $342.6m.
The figures are given in a blog in the Wall Street Journal, citing figures from consultant EY.
According to the WSJ blog, domestic and international pension funds and other corporate institutional investors are putting more cash into African markets. It highlights new money from Africa’s fast-growing domestic pension funds and growing confidence in African frontier market equities, quoting Joseph Rohm, portfolio manager at Investec Asset Management: “These are nascent capital markets and they are illiquid markets. But what has been encouraging is that, for the first time in a long time, we are starting to see more capital raisings.”
He attributed the IPO increase to an earlier boom in private-equity investments: “We have known for a long time that the amount of private equity in African markets—and more broadly in frontier markets—is unprecedented and we are starting to see those opportunities coming to public markets.”
Bourse de Tunis saw 2 IPOs in 2012, but this was up to 11 last year and 2014 is also looking strong. WSJ[ blog cites Slim Feriani, chief executive officer and chief investment officer of Advance Emerging Capital, a Tunisian, who said: “In the next 5 to 10 years we are bound to see more IPOs. As it stands, some of the hidden gems are still in private hands,”
The blog also quotes Razia Khan, head of African region research at Standard Chartered, who said Africa’s IPO activity tends to be concentrated in key markets with most big deals so far in 2014 in North Africa. She added the current listing boom is evidence that the African markets are still recovering from the shock of the financial crisis in 2008: “The IPO activity lagged this recovery in growth—it’s not surprising that we’re seeing a rise, but the scale of it is interesting.”

Nairobi Securities Exchange IPO closes 12 Aug

Significant dates
24 July – IPO opens
12 Aug – IPO closes
4 Sept – Share allotment announcement
9 Sept – Self-listing ceremony
nairobisecuritiesexchange_NSE21

The Initial Public Offering (IPO) of the Nairobi Securities Exchange Limited (www.nse.co.ke) is open until 12 August. The NSE is seeking to raise KES 627 million ($7.14m) by selling up to 66,000,000 new shares (some 31% of the equity) at a price of KES 9.50 per share. The offer is open to domestic and international investors.
The IPO will culminate on 9 September with the self listing of the NSE on the Main Investment Market Segment (MIMS), making it Africa’s second security exchange after the Johannesburg Stock Exchange (www.jse.co.za) to demutualize and list itself.
Mr. Henry Rotich, Cabinet Secretary for the National Treasury, said during the IPO launch ceremony on 23 July (see press releases here): “One of the key objectives of the Capital Markets Master Plan is to build on recent market reforms to address regulatory and institutional constraints in order to strengthen market infrastructure, intermediation, oversight and governance standards. The demutualization and self-listing of the NSE form part of the government’s policies to enhance governance standards and facilitate access to our markets by a wider community of investors. “
Mr. Edward Njoroge, NSE Chairman, said: “The success of our country and the region will be mirrored both in our market and our company, the NSE. We urge all Kenyans, and other investors both far and wide, to embrace this offer with the confidence that Kenya’s growth and future success will, in many ways, be accelerated through the development of our capital markets.”
The minimum number of shares available for purchase is 500 at a cost of KES 4,750.00 (approximately $54). Thereafter purchases are in multiples of 100 shares.
The NSE is celebrating its 60th anniversary and the demutualization and share offer have taken 5 years until the Capital Markets Authority approved all in June.

Is the NSE IPO a bargain? Analysis by Ryan Hoover

Ryan Hoover of the excellent Investing in Africa blog (www.investinginafrica.net) has published his analysis of the NSE IPO here, it is well worth reading. He looks at the NSE income and expenses in the prospectus, and shows that transaction levies (fixed at 0.24% of total trade value, i.e. 0.12% on each side) are the main source of income, earning the NSE KES 405m in 2013. He breaks down the baseline earnings to come with an after-tax figure of KES 0.80 per share, giving the offer a price/ earnings (P/E) ratio of 11.8x.
Since Kenyan bonds currently yield around 11% he looks at future earnings, noting that trading volumes are up 37% in the first half of 2014. Using a forecast growth in earnings per share of 20% he believes the shares could be worth KES 19.90 in 2019 at a P/E ratio of 10x (the JSE is on P/E of 16x) and adding in dividends at KES 0.25 per year (the current level adjusted for the IPO) he sees the potential annual return at 17.4%.
Check out his excellent blog, also for the discussion following the article, which points out that the offer is likely to be over-subscribed.

Abraaj makes its first private-equity exit in Angola

Leading private-equity investor The Abraaj Group (www.abraaj.com) has exited its investment in Fibrex (www.fibrex.co.ao), its first exit in Angola. The announcement today (4 Aug) did not give details of the price or the buyer
Fibrex manufactures high-density polyethylene (HDPE) and other low-pressure plastic pipe products used in the construction industry. Abraaj invested through one of its funds in 2007 and has given operational support and since then, production volume has grown by 70%. Abraaj has supported upgrading the energy-supply infrastructure, improved governance, accounting and reporting standards, and increased environmental efficiency at Fibrex.
When Fibrex started in 1966, it was making woven bags to transport agricultural materials and fertilizers. It evolved into products such as PVC and HDPE pipes for the construction industry and it became the first company in Angola devoted to manufacturing plastic pipes and fittings. It has grown since into the domestic market leader.
In 2010 Fibrex secured ISO 9001 certification for quality management. The production facilities were further upgraded to recycle by-products of production, including plastic sawdust and fragments, and to reduce noise.

Credit: http://luanda.all.biz

Credit: http://luanda.all.biz


Abraaj’s also worked with Fibrex and Angola’s labour and trade unions to offer counselling, testing and adequate medical care to employees for HIV treatment.
The announcement quotes Davinder Sikand, Partner and Head of Sub-Saharan Africa at The Abraaj Group: “At Abraaj we have an unrivaled history of pioneering the private equity industry in Africa, where our strong on-the-ground teams penetrate relatively untapped markets and gain access to opportunities that often pass under the radar of investors that are not as well entrenched in these markets.
“We initiated our investment in Fibrex based on Angola’s strong macroeconomic conditions. The country, focused on rehabilitating its national infrastructure, showed rapid GDP growth and demonstrated significant demand for quality construction-related material and products which has helped Fibrex attain a market leading position in the country.”
Sandeep Khanna, Managing Director at The Abraaj Group: “Fibrex was not only well positioned to capitalize on the wide-scale infrastructure development of Angola, but also presented impressive growth rates sustained by its ability to retain its market-leading position despite increasing competition from new foreign entrants.
“Fibrex remains in a strong position today to capture the continued growth of the construction industry, as Angolans and the African continent more broadly seek to address their infrastructure needs. This successful experience in Angola has strengthened our confidence in the country’s investment opportunities, increased our appetite for Angolan businesses, and boosted our search for local partner companies.”
The Abraaj Group currently manages USD $7.5 billion across more than 20 sector and country-specific funds, encompassing private equity and real estate investments. Funds managed by the Group currently have holdings in over 140 partner companies across 10 sectors including consumer, energy, financials, healthcare and utilities. It operates in the growth markets of Africa, Latin America, the Middle East, South Asia, South East Asia, Turkey and Central Asia and employs over 300 people across over 25 offices in 6 regions, including hubs in Istanbul, Mexico City, Dubai, Mumbai, Nairobi and Singapore.
It has been investing in Africa for the past 29 years, deploying $2.6bn across 80 investments.

Visa helps towards remittance target cost of 5%

Report cover by the Overseas Development Institute.

Report cover by the Overseas Development Institute.

On average Africans are paying on average 12% ($25) to send $200 home, which is twice as much as the global average. According to UK thinktank Overseas Development Institute (ODI): “The global community pledged to cut remittance charges to 5% by 2014, yet this ‘super tax’ shows there is a long way to go. Our report urges governments to increase competition in money transfer remittances and to establish greater transparency on how fees are set by all market operators.”

In addition, many African businesses are finding it harder to get access to banking services as banks are tending to shy away from countries where they see more risk and less profits, after a couple of years of massive fines by US regulators on global banks for their global operations. This means that there are less routes to send money to Africa, last year there was a fight to keep the last legitimate banking payment lifeline to Somalia, offered by Barclays, open. Cutting this would have ended many transfers including remittances and aid.

According to a story in Business Day of 16 July, the World Bank, Group of Eight (G-8) and Group of Twenty want the price charged by banks and money transfer operators to send remittances to and from Africa, as well as within the continent, reduced to the G-8 target of 5%, from the average 12.4%. It says that payments technology company Visa is working closely with South Africa’s banks and retailers to open more corridors for consumers to send remittances more cheaply.

ODI said 2 money transfer operators — Western Union and MoneyGram — account for two-thirds of remittance transfers. Remittance prices are even higher between African countries, according to the World Bank.

According to the Business Day report Visa has launched a programme “at a ‘tenth of the price of the traditional players’ using its network connecting banks across 200 countries, to send money from one Visa card to another, Visa sub-Saharan Africa head Mandy Lamb said in Johannesburg on Tuesday.

“Consumers can send money via cellphones, a bank branch, an ATM, internet banking or a point of sale machine at a retailer, in real time. Equity Bank in Kenya was the first sub-Saharan bank to launch the programme last year.

“Visa is certifying some banks and retailers in South Africa to allow them to offer remittances. Some are to start the service between now and the end of year, said Ms Lamb.

“‘In South Africa we have seen a great interest in banks wanting to offer remittance as they have seen the business case … it is lucrative for them and meets the World Bank requirements in terms of bringing down the costs of remittance,’ she said.

“Retailers are also interested in sending and receiving remittances as they have realised it is ‘commercially viable for the lower end of the economy’, said Ms Lamb.

“Visa research estimates that around $73bn was sent via money transfers in sub-Saharan Africa in 2012 and this would grow at double-digit rates to $101bn by 2017.

“This is a substantial opportunity for Visa which benefits from remittance flows, disbursement flows and prepaid cards in the market. By 2017, Nigeria would account for $55.8bn in remittances, Kenya $27.5bn and SA $17.6bn, according to Visa.

“Remittances sent from outside Africa would be the fastest-growing market, expected to amount to $38bn by 2017 — or 27% of the total remittance market. This would be an increase from $19bn in 2012 when this category made up 20% of the total remittance market.”

Steps to build the Nigerian debt capital markets

By Lasitha Perera, Executive Director, Frontier Markets Fund Managers

At the recent Africa Debt Capital Markets Summit (ADCM 2014) in London I had the privilege of moderating a panel focussed on Nigeria’s Debt Capital Markets. I was joined by some of the key actors currently working to build deep and active debt capital markets in the country, including representatives from the Nigerian Sovereign Investment Authority (NSIA) and the Securities & Exchanges Commission (SEC).

The following were highlighted as the main challenges:
1) A need for improved coordination within the Federal Government of Nigeria (FGN) to ensure that the FGN’s own bond-issuance programme and rate-setting policies do not crowd out sub-sovereign and corporate borrowers from accessing the debt capital markets.

2) Greater efficiency, transparency, and lower transaction costs thereby encouraging more sub-sovereign and corporate borrowers in Nigeria to use the debt capital markets.

3) More financial education and capacity-building for all participants in Nigeria’s debt capital markets to enable better understanding of risk, facilitate better pricing decisions and improve liquidity.

The panel gave examples of initiatives that have been or are being developed to overcome these challenges:
1) The Nigerian Mortgage Refinancing Company, in which the NSIA is a shareholder, was highlighted as an example where different agencies of the FGN have successfully cooperated to build an initiative that will play a significant role in developing Nigeria’s debt capital markets.

2) When GuarantCo, a development finance fund that my firm manages, credit-enhanced one of the earliest Nigerian corporate bonds in 2011 it took nearly 18 months to obtain SEC approval. With the benefit of technical assistance from GuarantCo, the SEC can now approve in 2 weeks.

3) GuarantCo is also partnering with the NSIA, to develop a Nigerian Credit Enhancement Facility that will credit enhance infrastructure bonds, improving their credit ratings to investment grade, thereby enabling the debt capital markets to finance critical infrastructure.

The story of how Nigeria’s debt capital markets develop will be one based on marginal gains such as those above. It remains however a story full of positives and potential.

Dar es Salaam Stock Exchange: 8 weeks to launch new African trading system and CSD

After a high-speed 8 weeks installation, Dar es Salaam Stock Exchange (DSE) successfully “went live” on 27 June with an integrated trading system and clearing and settlement technology supplied by South Africa’s Securities and Trading Technology (STT). As reported on this blog the DSE has switched from Millennium IT systems supplied by the London Stock Exchange group.

Happy at the launch, STT CEO Michelle Janke and DSE CEO Moremi Marwa

Happy at the launch, STT CEO Michelle Janke and DSE CEO Moremi Marwa

Moremi Marwa, CEO of DSE (www.dse.co.tz) said in a press release: “This is another milestone for our national exchange – we have not only achieved to execute this in the shortest period possible but we also have managed to procure a system that seamlessly integrates our automated trading platform with the central securities depository and the national payment system through SWIFT interface – this means we have now achieved a true Delivery versus Payment (DVP) and hence risk-management assurance to our investors.

“Furthermore the system is more efficient, it is more scaleable and flexible, which is line with our strategic intent of introducing new products and increasing accessibility to our system through the use of mobile, Internet and SMS trading facilities. We are very grateful for what we have achieved during this short period of time. We are thankful to the STT team for partnering with us and making it possible for us to pull this off.”

He told AfricanCapitalMarketsNews on Monday 30 June in London that the system is also priced in a favourable way that incentivizes both parties to boost the exchange’s performance.

Michelle Janke, MD of STT (www.sttsoftware.co.za) said: “I am extremely proud on this momentous occasion. Today the Tanzanian exchange becomes STT’s third exchange to go live with STT’s integrated exchange solution. Furthermore, the DSE is STT’s first African exchange to go-live with our equities platform as well as our central securities depository (CSD) system, and this was all accomplished within 8 short weeks.”

Founded in 1985 in South Africa, STT started working with the South African market for government bonds (gilts). It specializes in developing financial market software solutions to South African and other clients. Core products include exchange solutions, back-office management systems and to front-end trading tools. Other systems include clearing systems, custodial systems, trading systems, risk-management systems and customer relationship management systems for clients such as central, reserve, commercial, private and investment banks, brokers, insurance companies, trading houses, corporate treasury operations and central securities depository participants

Former JSE director Allan Thomson is working with STT in a consortium to rival South Africa’s authorised central securities depository, Strate, according to a report in Business Day. He has been involved in setting up the Bond and Derivatives Exchange of Zambia and the Nairobi Securities Exchange’s derivatives exchange for the East African region.

Kenya pledges lower domestic rates after $8.8bn bids for its $2bn Eurobonds

Nairobi National Park (credit: Kenya Tourism Board, www.magicalkenya.com)

Nairobi National Park (credit: Kenya Tourism Board, www.magicalkenya.com)

Global investors offered a record $8.8 billion in bids for Kenya’s 5- and 10-year Eurobonds this month. The country issued $0.5bn in the 5-year bond at 5.875% and $1.5bn in the 10-year at 6.875%. The resounding success is likely to encourage more African governments to speed up plans to come to international markets for credit while cheap global rates continue and appetite is high for frontier markets debt.

This is Africa’s biggest Eurobond issue to date. According to the BBC, investors from the US took about 67% of the issue and UK investors about 25%. Bond rates on Kenya’s 10-year debt in issue came down since the new issue was first announced on 16 June to 6.41% which is 381 basis points over the similarly dated US treasuries, according to Bloomberg.

President Uhuru Kenyatta was reported on Reuters telling a news conference: “By accessing these external funds, we will reduce government borrowing from the domestic markets, thereby helping drive down interest rates which should boost investment, spur economic growth, provide more employment opportunities to our people.” He described the sale as “a vote of confidence”. At a state of the economy address on 25 June he said the funds would be used prudently to fund infrastructure including transport and energy and to fund agriculture.

Cabinet secretary for the National Treasury (equivalent to Finance Minister) Henry Rotich said: “Investors were impressed with the management of our economy and perceived it to be very strong.” He said it would diversify government’s financing for development programmes. He also said the Government would come back to the markets in the next fiscal year (starting 1 July) but may consider a sukuk bond (see here for UK’s £200 million sukuk bond success) or a diaspora bond. The sovereign is also set to be a benchmark for Kenyan firms issuing corporate bonds on international markets, similar to the success of Nigeria’s sovereign issue.

Rotich said that from 8 July the Central Bank of Kenya would start setting a new reference rate for banks, the Kenya Banks Reference Rate. Banks would have to use this, although they would still be able to add risk premiums according to the creditworthiness of borrowers. This is also expected to lower interest costs and the rate would be set according to the average of the CBK’s main lending rate and the average yield on benchmark 91-day Treasury Bills every 6 months.

The Government announced its 2014/15 budget this month and forecast a budget deficit of 7.4% of gross domestic product (GDP) and local borrowing of KES190.8bn ($2.18bn) or 4.1% of GDP, according to Reuters. Macro-economist Rotich was a colleague when Kenyatta was Finance Minister and the two are working together to speed up Kenya’s economic growth to over 10%. According to a story in the Financial Times blog Beyond Brics, Rotich says Kenya will grow at 5.8% this year and 6.4% next year, however the World Bank has just cut its forecast from an earlier 5.3% forecast for this year and forecasts 4.7% for both years.

The blog cites the World Bank report: “The new projections reflect the effects of the drought, the deteriorating security situation, the low level of budget execution, and tighter global credit as the US Federal Reserve winds down its expansive monetary policy.”

The World Bank says drought has cost Kenya $12bn over the last 10 years and that foreign direct investment (FDI) is only 1% of GDP. The blog reports: “The World Bank is also increasingly preoccupied by the impact of inequality on growth and stability.” The World Bank is optimistic and is backing Kenya with a $4bn programme, double the Eurobond.

Kenya plans $43bn of infrastructure by 2017, but there are questions as to whether they get value for money in a $3.7bn deal with Chinese for new rail and rolling stock. Kenya is likely to become a middle-income country by September after re-basing because of statistical revisions.

Africa’s leading bond and debt summit

ADCM 2013

ADCM 2013

ADCM 2013

ADCM 2013

Top speakers including Government leaders, policy-makers, bankers, investors and experts will be debating the future of Africa’s debt capital markets on Monday 30 June at the London Stock Exchange. The African Debt Capital Markets ADCM 2014 conference is organized by African Banker magazine. I am honoured to be moderating some sessions.

Among the conference highlights are debates on whether African governments have been using bond proceeds wisely, the future for African bond issuances, local currency markets and the challenges of deepening the debt capital markets. There will be calls for policy-makers to make changes to support securitization and other steps to boost finance for development, jobs and growth, following successes in Asia and the world.

Speakers include the Hon Kweku Ricketts-Hagan, Ghana’s deputy Minister of Finance, and Dr Abraham Nwankwo, Director-General of the Nigeria Debt Management Office and Jaloul Ayed, a former Minister of Finance from Tunisia. There will also be Mary Eduk from the Securities and Exchange Commission in Nigeria, Uche Orji of the Nigeria Sovereign Investment Authority, and Stephen Opata from Bank of Ghana.

Stock exchange leaders include Sunil Benimadhu, dynamic head of the African Securities Exchanges Association and CEO of the Stock Exchange of Mauritius, Moremi Marwa CEO of the Dar es Salaam Stock Exchange and Innocent Dankaine from the Uganda Securities Exchange.

Banks, fund managers and stockbrokers include HSBC, Renaissance Capital, Investec, Ecobank and Exotix and there will be many leading legal and other experts including rating agencies Moody’s and Fitch.

There will be a special focus on the Nigerian Debt Capital Markets. Other panels will cover infrastructure, public-private partnerships, sovereign Eurobonds and local currency markets, shadow banking, Islamic finance, new institutional investor trends, and Africa’s standing among global markets.

For more information, look at the website here.

Britain raises £200m through sale of Islamic sukuk bond

Sultan Ahmed Mosque, Istanbul (credit: Wikipedia)

Sultan Ahmed Mosque, Istanbul (credit: Wikipedia)

Britain attracted £2.3 billion ($3.9 bn) in orders when it became the first western country to issue an sharia-compliant bond, that obeys Islamic religious rules. The £200 million ($340m) 5-year Islamic finance bond does not pay interest but instead shares profits based on rental income from three properties owned by Her Majesty’s Government. The return is 2.036%, the same as the yield on UK 5-year Government bond or gilt.

The bond was marketed by HSBC, Malaysia’s CIMB, Qatar’s Barwa, National Bank of Abu Dhabi and Standard Chartered Bank. HSBC said that more than a third of the issuance went to UK investors.

A story in the Financial Times says London is aiming for a place as a global centre for Islamic finance. The bond attracted orders from investors in UK, Middle East and Asia for more than 10 times the amount sold. It was launched a few days before Ramadan. According to Dealogic, so far this year global sukuk issuance has totaled $21bn. The UK bond is considered high-grade debt.

George Osborne, the Chancellor, was reported as saying the sukuk is part of a long-term economic plan to make Britain the centre of the global financial system. “We have seen very strong demand for the sukuk, resulting in a price that delivers good value for money for the taxpayer.”

The FT reported Farmida Bi, European head of Islamic finance for law firm Norton Rose Fulbright, saying: “The UK government bond will be particular attractive to Islamic banks because they need to hold highly rated paper to meet the requirements of Basel III.” There have only been 4 Islamic bonds rated AAA since the start of 2013, of which 3 were issued by Islamic development bank in Saudi Arabia and one for public-sector finance in Malaysia.

Several African countries including South Africa have expressed strong interest in introducing sharia-compliant bonds and have altered tax and other rules to allow this.

Osborne hopes this will pave the way for future corporate issues. In 2007 British grocer Tesco issued a sukuk through its Malaysian arm and in 2009 online grocer Ocado borrowed £10m in a sharia-compliant loan. Only one domestic manufacturer, International Innovative Technologies in northern Yorkshire, has borrowed money in UK through a sharia-compliant bond.