Archive for the 'Bonds' Category
May 13th, 2013 by Tom Minney
African countries (apart from South Africa) are set to place $7 billion of debt this year, buoyed by low interest rates and a huge global appetite. According to this article in Bloomberg Businessweek by Roben Farzad, this year’s debt issues will be more than the previous 5 years combined and African capital markets are feeling the boom.
No wonder international investors who are “grabbing for yield and growth” (according to Farzad) are looking to Africa which the International Monetary Fund forecasts will grow at 5.6% this year against 1.2% in developed countries. But Africa’s terrible infrastructure, including electricity, bridges, roads and wastewater treatment, is costing African sat least 2 percentage points of growth. Some of the new bond proceeds are likely to go on infrastructure, which needs investments of up to $93 billion a year.
The article cites research from JP Morgan Chase that average yields on African debt fell 88 basis points in the past 12 months, to 4.35%. “Nigeria, Gabon, Ghana, Ivory Coast, Namibia, the Congo, Senegal, and the Seychelles have all seen their borrowing costs fall this year.”
“It’s a hugely exciting story,” Jim O’Neill, the chairman of Goldman Sachs Asset Management who plans to retire this year, said in an April 23 interview with Bloomberg Television in London, writes Bloomberg reporter Chris Kay: “The only thing one has to be a little bit careful of are many of those markets are still very undeveloped and suddenly there’s a lot of people around the world regarding Africa to be sort of fashionable and trendy.”
Farzad wonders how easy it will be to “service so much easy-money debt when the credit cycle turns, or if commodities and political stability decline. At least for now, though, you get the impression that sub-Saharan Africa has turned a corner in global capital markets.” And journalist Chris Kay quotes Charles Robertson, global chief economist at Renaissance Capital: “For governments, great, don’t look a gift horse in the mouth. I still don’t believe investors are getting risk-adjusted returns in the dollar-bond space.”
According to Kay, debt-forgiveness programmes have helped 45 African nations cut debt to about 42% of gross domestic product this year from an average 120% in 2000, according to data compiled by Bloomberg and IMF estimates. South Africa’s Finance Minister Pravin Gordhan says debt will peak at 40% of GDP in 2016, compared with more than 100% for the U.S. and an average 93% in the eurozone.
Another reason why Africa offers lower risk is that taxpayers have no expectations of massive social and other spending in nearly all countries. Meanwhile global appetites are shown by the $20 trillion reportedly invested in debt at less than 1% yield.
Some potential issues
Nigeria planning to offer $1bn in Eurobonds and a $500m Diaspora bond, according to Minister of State for Finance Yerima Ngama. It was recently included in JP Morgan and Barclays local bond indices. Yields on the existing $500m Eurobond, due 2021, were down to 4.05% by 3 May, from a peak of 7.30% in October 2011.
Kenya really boosted investor confidence in Africa with its peaceful outcome after elections on 4 March and the Finance Minister Robinson Githae said on 11 March they could be in line to issue up to $1bn by September.
Ghana fuelled by an oil boom, has seen its debt yields on the 10-year bonds down 3.43 percentage points to 4.82% since their issue in October 2007, said Bloomberg.
Zambia successfully raised $750m last year at 5.625% and is thinking to return for another $1bn. Yields were up 20 basis points to 5.66% by 3 May.
Tanzania has asked Citigroup to help it get a credit rating before issuing a maiden Eurobond of at least $500m. Finance Minister William Mgimwa said a total of $2.5bn was bid for a private offering of $600m of Government debt in March. According to this story on Reuters that bond’s pricing and structure at the time had shocked markets and appeared to benefit investors: “The cheaply priced US$600m seven-year private placement was described as a “disaster” by one banker. And certainly the immediate secondary market performance looked terrible. The bonds jumped 2.75 points on their first day of trading.. That works out at a cost to the government of US$4m a year in coupon payments, assuming that the bonds could have priced at the tighter level.”
Angola did a private sale of $1bn in debt in 2012 and will go for $2 billion this year, according to Andrey Kostin Chairman of VTB Bank OJSC, who helped arrange the first issuance, last October.
Mozambique and Uganda may also issue foreign currency bonds of $500m each, according to Moody’s last October.
Gabon’s $1bn of dollar bonds are down 4.78 percentage points to 3.13% since they were issued in December 2007.
May 10th, 2013 by Tom Minney
The first Eurobond issued by Rwanda, due to mature in May 2023, raised $400 million at 6.875%. According to this article in Bloomberg Businessweek, some of the money will be used to pay for building a 28-megawatt hydropower plant. The fund received some $3.5 billion in orders for the bond, which has a coupon of 6.625%, and Finance Minister Claver Gatete said on 24 April that 250 investors took part, according to a report in New Times.
Speaking at the World Economic Forum in Cape Town this week, Gatete said the hydropower plant will be fully operational by June 2014, with 14-MW already onstream by December. Last month he told reporters the rest of the money will be used to complete the building of Kigali Convention Centre and pay off some of state-owned RwandAir’s debt for its expansion programme.
According to local news reports in April, he said: “The bond, which was oversubscribed, signals that international investors have confidence in Africa beyond the usual commodity growth story. Rwanda’s intentions are to invest in infrastructure as part of building a modern, dynamic, service-based economy that is connected to international markets and that allows for rapid development.”
Bloomberg quotes him this week: “We didn’t just go to the market to look for any amount of money — we went for specific projects,” he said. “We have to be very careful when we go to the market and defining what the money will be used for.” But it could sell more debt if it needs to fund “high-impact” projects in tourism and energy.
“Very good news for the country…#Rwandabond, investors are honest judges on our country’s story and progress…they have said it,” the President wrote on his Twitter account @PaulKagame.
The bond has which has a coupon of 6.625%, and the issue was handled by BNP Paribas and Citigroup as joint lead managers, with legal work by London lawyers White & Case, according to their press release , which adds they advised 6 of the last 7 sub-Saharan African sovereign issues. A Rwandan Government delegation did roadshows in Boston, Frankfurt, Hong Kong, London, Los Angeles, Munich, New York and Singapore. Reuters quoted the fund managers saying it was “priced to perfection” and quoted Mark Bohlund, senior economist, sub-Saharan Africa, at IHS Global Insight: “If you want to have exposure to sub-Saharan Africa but you’re worried about a drop in commodity prices and you want to rebalance your portfolio Rwanda is a good investment.”
The yield on the 6.875 percent dollar bond due in May 2023 was little changed at 6.9 percent by 8 May. it is traded on the Irish Stock Exchange. Fitch Ratings rated long-term foreign and local currency rating at B, five levels below investment grade. Standard & Poor’s also gave B with stable outlook. Rwanda’s economy grew by 8.2% for the last 5 years but the Government targets an average 11.5% annual growth in the Economic Development and Poverty Reduction Strategy II (EDPRS II).
The latest IMF mission commented [link] on 16 April: “The economic outlook for 2013 has weakened somewhat since the 5th review. The growth of the construction and service sectors is expected to slow down in response to tighter economic policies. This will be partly offset by stronger growth in agriculture (food crops), for which the first harvest of the year was good, and an acceleration in foreign-financed investment projects. Growth is expected at 7.5% for the year. Downside risks predominate, stemming from possible cutbacks in aid, delays in project implementation, and a more challenging global environment. Inflation is expected to rise to 7.5% by end-2013.”
January 26th, 2013 by Tom Minney
The International Finance Corporation (www.ifc.org), part of the World Bank group, plans to issue a $50 million (NGN 8 billion) local-currency Naija bond in Nigeria to support the domestic capital markets and increase access to local-currency finance. IFC bonds are rated triple-A by Moody’s Investors Service and Standard & Poor’s and the Naija bond is likely to appeal investors such as pension funds, insurers, asset managers, and banks wanting to diversify their portfolio while investing in high-quality assets.
It is part of an extensive programme by the IFC to issue more local currency bonds in a range of countries. IFC launched its Pan-African Domestic Medium-Term Note Programme in May 2012. It focuses on Botswana, Ghana, Kenya, Namibia, Rwanda, South Africa, Uganda and Zambia. IFC has obtained approvals to issue local-currency bonds in Kenya.
According to Solomon Adegbie-Quaynor, IFC Country Manager for Nigeria, quoted in this IFC press release: “The IFC Naija bond will support the Government’s efforts to deepen domestic capital markets in Nigeria. It will help pave the way for other issuers in the domestic markets and makes available funds that can be put to work in the local economy.”
Jingdong Hua, IFC Vice President and Treasurer, added: “Vibrant domestic capital markets are the foundation for lasting growth—and in Africa, they can mobilize capital to close the financing gap for key sectors such as infrastructure and housing. The IFC Naija bond will be a milestone achievement as we continue to work with governments and local authorities to strengthen domestic capital markets in the region.”
Local currency proceeds from the African bond will be used to support IFC’s development programme for the private sector. IFC’s committed portfolio in Nigeria stands at $1.1bn, the largest country portfolio in Africa and the eighth-largest globally. It will be the IFC’s first naira-denominated bond and the first bond placed by a non-resident issuer in Nigeria’s capital markets.
IFC issues bonds as part of its regular programme of raising funds for private-sector development, and to support the development of domestic capital markets. In many cases IFC is the first, or among the first, non-resident issuers. Last 30 June (2012), IFC had outstanding bonds totalling $45bn in 11 currencies. Before the current programme, IFC worked with Ghana, Zambia, and 8 members of the West African Monetary Union to establish local-currency bond programmes, including bonds in CFA francs during 2006 and 2009.
The IFC Naija bond is the result of collaboration with the Nigerian Government, regulatory authorities, and market participants. Chapel Hill Advisory Partners Limited and Standard Chartered are lead managers of the transaction.
IFC is the largest global development institution focused exclusively on the private sector, financing investment, mobilizing capital and giving advice to businesses and governments. Investments reached an all-time high of more than $20bn in the 2012 financial year.
November 1st, 2012 by Tom Minney
Nigeria’s debt market continues to boom with growing volumes in the local debt market and inclusion in the JP Morgan Government Bond Index-Emerging Markets (GBI-EM) from 1 October as Africa’s second entrant after South Africa, Yesterday (31 Oct) the Debt Management Office (DMO – www.dmo.gov.ng) was reported by local newspaper This Day as saying it had received bids totaling NGN1.7 trillion ($10.8 billion) for Government debt in the 12 months to Sept 2012 and had issued a total of NGN852bn in debt over the period.
Nigeria has been tipped by many leading research houses and banks as one of the most promising African markets for local-currency debt, after strong performance for the naira (NGN) against the US dollar ($) and strengthening bond prices and falling yields.
Demand picked up strongly after JPMorgan announced in a note to clients on 15 Aug that its GBI-EM Index may include Nigerian debt maturing in 2014, 2019 and 2022 in a gradual inclusion starting 1 Oct and finishing by year-end. The bonds, with a market valuation of $3.2bn as of August, may represent about 0.59% in the index. JP Morgan sub-Saharan Africa economist Giulia Pellegrini was quoted in an article on Bloomberg as saying about $170bn of assets are benchmarked to the JPMorgan index. Market estimates are for an inflow of up to $1.5bn into the market by funds tracking the index. Central Bank of Nigeria (CBN) Governor Lamido Sanusi lifted a requirement in 2011 for foreign investors to hold local-currency debt for at least 1 year and this was proving successful in attracting investors and improving liquidity, said Pellegrini.
Nigeria is rated B+ at Standard & Poor’s (BB- Fitch), along with Venezuela and Zambia, four steps below investment grade and the outlook is “stable”. Bloomberg says the daily trading of naira amounts to as much as $200mn, according to Citigroup Inc., compared to about $14bn of South African rand (ZAR) being traded daily, according to a 2010 survey by the Bank for International Settlements. “The country’s external buffers are gradually being restored,” Razia Khan, the London-based head of Africa research at Standard Chartered, wrote in a 18 Sept note to clients. “It is all important that this process continues for Nigeria to be able to safeguard both price stability and growth should these be put to the test by weaker oil prices in the future.”
Nigeria’s sovereign bond market is put at $23bn but secondary market trading is still a fraction of trading in South African foreign debt. Angus Downie of Ecobank says the daily trading in government securities could grow by up to $50m from previous levels of $400m/day with foreign investors likely to remain significant, and his colleague Paul Harry Aithnard, Group Head of Research at Ecobank, says that the ZAR was previously seen as the proxy for Africa, but the NGN is attracting investors looking for an alternative. Samir Gadio, emerging markets strategist at Standard Bank, said: “It’s now seen as a market that can’t be ignored internationally and one of the frontier markets where you need to have a position.”
Yields on Nigeria bonds have been falling as investor interest grows. There has been some profit-taking but inflation prospects are improving and reserves are being grown. However, there is still considerable scope for more deepening in the Nigerian market, and private banks are still avoiding some sectors, including agriculture and small-scale construction. In January 2011 the Nigerian Government issued a 10-year $500m Eurobond at a yield of 7% and carrying a coupon of 6.75%, but by mid-October 2012 the yield had fallen to 4.57% according to the DMO and the closing price was $114.79. Yields are also down on debt from Gabon, Namibia and Ghana.
September 26th, 2012 by Tom Minney
Pan-African stockbroker and financial services firm Securities Africa (www.securitiesafrica.com) has acquired a Nigerian stockbroker, Skye Stockbrokers Limited, in June and this week it announced that it has successfully changed its name to Securities Africa Financial Limited. The company has appointed Mr. Afolabi Folayan as Managing Director.
The stockbroker was previously owned by Skye Bank Plc and it was sold to Securities Africa Limited and local shareholders in compliance with a 2011 regulation by the Central Bank of Nigeria on universal banking. Securities Africa Financial Limited is a licensed member of The Nigerian Stock Exchange and regulated by the Securities & Exchange Commission of Nigeria. It has been busy with rebranding the company. Securities Africa Limited is an award-winning Pan-African financial services firm with offices throughout Africa, Asia, Europe and the Americas.
Securities Africa Financial Limited delivers a wide range of capital markets and investment banking services to state governments, pension fund administrators, insurance companies, multinational conglomerates, and institutional investors throughout Nigeria. It has served as lead manager on numerous capital market transactions with leading companies and institutions, notably IHS Nigeria Plc, Tanalizers Plc, Law Union and Rock Insurance Plc, and Lagos State among others.
Mr. Folayan’s previous job was as Executive Director for WSTC Financial Services, where he successfully managed the company’s stock-broking and portfolio management businesses. He has wide experience in Nigeria’s capital markets.
Michael Barnes, Managing Director of Securities Africa, commented in a press release: “Given the numerous changes presently underway across the Nigerian capital markets, we are pleased to announce the appointment of Afolabi Folayan as Managing Director of Securities Africa Financial Limited. Afolabi brings a wealth of experience to the role and his leadership will be an enormous benefit to the company and our clients. Our business has made substantial progress in Nigeria, and Afolabi brings a unique blend of knowledge and expertise as well as a broad range of relationships, both in the corporate world and financial community.”
September 19th, 2012 by Tom Minney
World investors and debt-rating agencies should rethink criteria for evaluating political and other risk. “Risk is up for developed markets (DM) and down for Emerging Markets (EM)” said Andrew Dell, CEO Africa and Head of CEEMEA DCM at HSBC Bank PLC. He was a key speaker at a conference on “Outlook for Emerging Market Debt in 2013”, organized by Thomson Reuters International Financing Review in London on 18 September. He suggested people could be more sophisticated and nuanced in pricing political and other risk in both EM and DM. In many parts of Africa and other frontier markets, political risk is “fairly benign” and stable government is growing.
A factor behind potential re-pricing is that a spread of 300-500 basis points (3-5 percentage points) might seem modest, but when the risk-free rate is only 1% then it is a significant difference and these gaps could keep investors switching to EM. EM external debt totals EUR322 billion ($420bn) but domestic currency issuances, increasingly popular with investors, more than double the total.
Dell said “a driver for EM debt will be the approach of Basel III and how different countries will regulate it”, as banks move to compliance they will not be able to invest as before. Another driver will be the lower cost of debt, which makes it easier for issuers to get the desired returns (social returns for government, commercial returns for enterprises). More debt issuance “will benefit growth and benefit the economies.. it will benefit people”.
Other speakers at the conference also noted changes in perception as African debt yields come down and the supply of debt increases, while Africa has “infinite” demand for infrastructure, (a World Bank figure cited was $75bn a year). Projects were often not created in an ideal structure for bond issues. African policy-makers may struggle to stop economies overheating as they push forward vast infrastructure investment.
Conference take-aways
• Giulia Pellegrini, Frontier Markets Analyst, JP Morgan, highlighted the potential of domestic reforms including the rise of domestic pensions, for example the Nigerian pension industry is now worth NGN3 trillion ($18bn) and pensions are looking to invest in longer-dated bonds, boosting the yield curve. Fabianna Del Canto, Director Emerging Market Syndicate, Barclays suggested that infrastructure bonds could advance as domestic long-term investors come to the fore, including the growing insurance investors.
• Nick Rouse, MD, Frontier Markets Fund Managers, said they do loans including to infrastructure and have so far lent $800m with no defaults. He said 40% of the portfolio is in Independent Power Producers (IPPs) in Africa. He pointed out there is huge demand for electricity which is critical for jobs and growth. Bonds offer huge opportunities. His team had also worked with the regulator to create the first credit-enhanced bond in Nigeria. They achieve their target of 18% internal rate of return on debt.
• Angus Downie, Head, Economic Research, Ecobank said that the structure of African economies is becoming more sophisticated with flexible exchange rates and other market structures now operational.
• Liquidity is still a key constraint on many African debt markets.
• African debt should not be traded on exchanges but there should be scope for intermediaries and back-to-back deals. The role of exchanges is to report bond trades and pricing.
• Stephen Bailey-Smith, Head of Research: Africa, Standard Bank PLC African policy-makers and regulators should be removing taxes such as withholding taxes and others that lead to differential pricing and other difficulties, when it would be easier to streamline and concentrate on corporate tax, which may also yield higher incomes
• Asian investors are growing in importance, and are already taking keen interest in debt, including in South Africa.
• Eurobond – hard currency – debt issues need to be at least $350m or $500m, partly because of the cost of intermediaries. Local currency markets are more cost-effective for smaller issues and most African corporate debt
• Islamic Finance: Dell said that there is a growing pool of dedicated funds seeking Islamic finance opportunities. Since general investors are also becoming more comfortable with Islamic finance and making investments, for some issuers the investor base is bigger, particularly if they can attract Middle East investors.
This is Reuters’ story: “EM debt issuance on course to hit nearly USD400bn” published today.
September 14th, 2012 by Tom Minney
“There is a great appetite for Africa credit and a lack of supply,” is the comment from Standard Bank group analyst Yvette Babb interviewed by Bloomberg as Zambia went to the global market yesterday (13 September) with a USD750 million 10-year bond priced at a final coupon of 5.625%. It is Zambia’s first international bond and will be used to fund its budget and invest in infrastructure.
Reuters reports that the bond has “come 25bp tighter than initial guidance after generating an order book in excess of USD11bn”. Barclays and Deutsche Bank are the leads for the bond issue, although a roadshow reportedly planned for August was delayed.
Bloomberg also quotes Sashi Kumi, a trader at Nedbank Capital “Demand looks very good. The Africa story, in general, is carrying favor with investors. People see great growth on the continent.” The story noted that yields on Ghana’s eurobonds maturing 2017 have dropped 170 basis points, or 1.7 percentage points, this year to 4.85%.
Fitch Ratings and Standard & Poor’s have both rated the bond B+. Fitch says that this matched the southern African nation’s sovereign rating, which has negative outlook. It is 4 levels below investment grade. Fitch comments: “Zambia’s ‘B+’ rating is supported by its political stability, combined with a decade of growth above 6%, buoyed by macroeconomic stability, policy reforms as well as the emergence of a vibrant copper mining sector. Added to this, the country has a track record of fiscal discipline under IMF surveillance, with gross public debt of 22% of GDP, below the ‘B’ category median. External finances are a key strength, with the IMF/World Bank Debt Sustainability Assessment putting the risk of debt distress at low. External debt ratios are below ‘B’ and ‘BB’ peer group medians.
“The prospects for growth beyond 2012 are less certain. Growth in mining production could be constrained by weaker growth in China, Zambia’s main export destination, as well as persistent capacity constraints. The revision of Zambia’s Outlook to Negative on 1st March 2012 reflected concerns about the direction of economic policy since the change of government in 2011. Concerns centred around the reversal of a privatisation deal without as yet compensating the investing parties, which could undermine property rights, while proposed reforms of the mining and banking sectors could risk unintended consequences in terms of their potential impact on investment, and consequently on the growth outlook and macro-economic stability.”
S&P also highlighted the strong growth story – Bloomberg says it will grow by 7.7% in 2012, S&P says real per capita GDP will increase by slightly more than 5%. However, it also highlights policy issues: “We estimate GDP per capita at $1,510 in 2012. In addition, the balance of payments is vulnerable to swings in copper prices (copper accounts for about 80% of exports) and the government’s economic policy direction since the October 2011 elections remains uncertain. The ratings are supported by promising investment and economic growth trends, a fairly strong external balance sheet, and moderate general government debt, which has benefited from debt relief and nominal GDP growth.
“We believe some cabinet members’ apparently uncoordinated and sometimes contradictory views have added to economic policy uncertainty. This relates in particular to windfall tax, export tracking, and the government’s participation in the mining sector. We view positively the government’s objective to promote good governance and transparency. However, its reversals of several privatizations on the grounds of a lack of transparency and flawed processes may be perceived as politically motivated.”
A report by Carol Dean of the Wall Street Journal highlights the fundamentals: “It is looking to borrow money more cheaply than Portugal and only slightly more expensive than Spain. But rather than raise money to support a collapsing economy, Zambia’s money is going to be used for real economic development and growth. That is something rare in the old developed world. The proceeds are to be invested in developing energy, railways, roads and other infrastructure projects. In stark contrast to the euro-zone’s sluggish growth at best, Zambia’s economy has grown from 6.4% to 7.7% over the 2009 to 2012 period and enjoyed falling inflation, low debt and a stable balance of payments.
“And despite the pitfalls of possible mining reforms and nationalizations, the rare opportunity to invest in a sovereign growth story plus the ever present hunt for yield, is likely to make this deal fly.”
September 4th, 2012 by Tom Minney
Months of hard work came to a climax when the Botswana Stock Exchange successfully launched its automated trading system (ATS) and now has live trading. This replaces the open outcry trading system and the aim is to make the BSE more visible and trading more efficient. The exchange has been using a central securities depository (CSD) since 2008 and this was upgraded alongside the implementation of the ATS.
The ATS was installed by MillenniumIT, part of the London Stock Exchange Group, after a BWP8.8 million ($1.1m) contract. MillenniumIT also installed the CSD.
The new system was implemented on Friday 24 August. The day before, Thursday 23 August, was a trading holiday, while Friday was a settlement holiday with trades settling instead on 27 August. These holidays were meant to enable the BSE to transition from the old CSD system to the upgraded version.
There is still a key target to encourage more shareholders to dematerialize their paper certificates and register them in the CSD for ease of trading. According to the BSE Annual Report, 46% of all domestic company shares and 91% of foreign company shares were dematerialized by December 2011, and so was the first corporate bond. In the annual report Chairman Patrick O’Flaherty notes “Along with the implementation of the ATS, our CSD (Central Securities Depositories) system is also being upgraded. This will ensure that the trading, clearing and settlement infrastructure of the BSE remains state of the art”.
In 2011 the BSE recorded average daily turnover of BWP4.1m. The volume of shares traded in 2011 was 458.7m, up from 308.7m in 2010. Letshego Holdings did a ten-for-one share split in 2010 and Furnmart and G4s followed suit in 2011.
INTERVIEW WITH HIRAN MENDIS, CEO OF BOTSWANA STOCK EXCHANGE
ACMN: What has the market participants’ reactions to the ATS?
HM: The response has been very positive. Automated trading is a completely new development in our market, but all market participants, particularly the brokers, have embraced the development and have basically hit the ground running. The amount of enthusiasm in the market is very humbling for the BSE.
ACMN: Were there any problems in the implementation?
HM: Apart from the normal day-to-day challenges that form part of any project, there were no major challenges. As the BSE, we had to work extra hard throughout the lifetime of the project to bring all stakeholders together and make sure that everyone is on the same page; that everyone understands and embraces the primary objective of bringing our market to par with other regional and international giants. Overall, it has been an extremely demanding but very rewarding experience for all stakeholders.
ACMN: Have you seen an increase in trading volumes?
HM: It’s still too early to say. In the first 2 days, it was quiet; probably because the traders were being cautious with the new trading platform. But turnover has since jumped back to previous levels.
ACMN: Are brokers now connecting from their offices (wide area network)?
HM: The brokers have been connecting from their offices since 2008 and this setup is still being used, even with the ATS. The networks have so far been very cooperative as we have not had any outages. The links that we have been using for WAN connectivity since 2008 have been very stable. On average, we have experienced less than 10 hours of downtime per year since 2008. About half of this downtime happened outside of trading hours.
ACMN: Can you give some technical details about the ATS and the CSD and their integration?
HM: The ATS is a trading platform, primarily responsible for accepting client orders, as input by brokers, and matching those orders on set criteria to produce trades. CSD system acts as a back-end for the ATS, handling the registry function for the ATS, together with clearing and settlement of all trades that happen at the ATS. For a client to be able to trade through the ATS, then they need to open a CSD account first. Communication between the systems is on a real-time basis and as clients buy/sell shares, their CSD account balances are updated in real time. The ATS is able to trade equity, debt, ETFs (exchange-traded funds), and GDRs (global depository receipts). Instruments that are currently actively trading through the ATS/CSD are equities and ETFs. Plans to include bonds are underway and CFDs will follow in due course. Trading currently happens from 10:30 to 13:30. The first trading session is an opening auction, followed by regular trading, then an interim auction session, then another regular trading session, which is followed by a closing auction session, and finally a closing price cross session.
ACMN: What future steps are planned – such as increased data flows, remote membership of BSE and direct market access?
HM: At this point we are more concerned with ensuring that that system continues to function according to expectations. Once the dust has settled and all stakeholders are comfortable with the system then the BSE will begin exploring availing market data in real-time to data vendors etc. After that, as a second phase of the automation drive, we will explore the possibility of Internet trading. As the BSE, we understand and appreciate that a wide spectrum of developments are now possible with an automated market. Funds and time permitting, we will build services around the CSD/ATS systems in order to turn our market into a true global player.
June 6th, 2012 by Tom Minney
The International Finance Corporation (www.ifc.org), a member of the World Bank Group, and the African Development Bank (www.afdb.org) are to work together to facilitate local currency lending and bond issuance in Africa. They agreed to collaborate and benefit from each other’s local currency bond issues. This will enhance their local currency funding capacity to support their clients’ development projects.
On 1 June they signed an ISDA Master Agreement to enter into cross-currency swap transactions and for each it is the first with another multilateral financial institution. A “master agreement” is agreed between 2 parties and it sets out standard terms that apply to all the transactions entered into between them so that each time that a transaction is entered into, the terms of the master agreement do not need to be re-negotiated and apply automatically. The ISDA master agreement is published by the International Swaps and Derivatives Association (www.isda.org) and the early ones were used to snce 1985 to develop a Swaps Code but they can also be used for Over-The-Counter derivatives trading.
There is a concerted drive to strengthen debt markets in Africa. Local-currency bond markets provide long-term, local currency finance for projects and this protecting them from foreign exchange risks, although interest rates are often higher. Debt markets should be developed to be a key source of risk finance, particularly as foreign capital inflows became less because of the ongoing global financial crises. This agreement is the first step in an initiative for greater collaboration among multilateral institutions to accelerate local capital market development and increase local currency financing options.
In 2011, the Group of 20 called for a concerted effort to develop and strengthen local currency bond markets in emerging markets.
IFC Vice President and Treasurer, Jingdong Hua, said in a press release: ”Expanding long-term currency initiatives is a cornerstone of IFC’s strategy to strengthen capital markets in developing countries. Helping to establish and strengthen such markets allows us to work with regulators and local institutions to ensure that capital market regulations are effective and entrepreneurs are able to grow and create jobs.”
AfDB Vice President for Finance Charles Boamah said: “Promoting the development of local capital markets in Africa is paramount to successful, sustainable economic development. This agreement supports our African Financial Markets Initiative, which aims to further the development of domestic African capital markets, enlarge the investor base, and reduce African countries’ dependence on foreign currency denominated debt.”
Local currency debt issued in Africa
Since 2007, IFC has committed more than $650 million in 17 different local African currencies through a combination of swaps, bonds, and structured finance products.
IFC has issued local currency bonds in Morocco, the West Africa CFA zone (XOF) and the Central African CFA zone (XAF). It has been approved to issue local currency bonds in Kenya and Nigeria and is working with regulators in Botswana, Ghana, Kenya, South Africa, Uganda, and Zambia to obtain consent to issue local currency bonds under a Pan-African Domestic Medium-Term Note Programme and with 8 countries in the West African Economic and Monetary Union to establish local currency bond programmes.
The AfDB has issued bonds denominated in or linked to the Botswana pula, Ghanaian cedi, Kenya shilling, Nigeria naira, Tanzania shilling, Uganda shilling, and Zambian kwacha, since 2005. The AfDB is also a regular issuer in South African rand (ZAR), its third largest lending currency. Since 2005, the AfDB has issued more than ZAR 25 billion in the ZAR domestic and Euro markets.
The AfDB has been authorized to issue bonds denominated in over 15 African currencies including Cameroon, Egypt, Gabon, Mauritius and Senegal. It is requesting more authorizations. In Uganda it plans its first issue under a Global Debt Medium Term Note Programme, which will provide local currency financing and it is to facilitate an inward listing in Uganda.
About the organizations
IFC is the largest global development institution focused exclusively on the private sector. Its investments have reached an all-time high of nearly $19 bn.
The mission of AfDB is to help reduce poverty and improve living conditions in its regional member countries, focusing on inclusive growth, infrastructure, regional integration and private sector development. It approved more than $7 bn in operations in 2011 alone.
Social media
IFC
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www.youtube.com/IFCvideocasts
www.ifc.org/SocialMediaIndex
AfDB
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June 4th, 2012 by Tom Minney
Local savings institutions are one of the rising forces in African capital markets and we are interested in learning more about them. Here is some information from Kigali, Rwanda. Do you agree that savings and credit cooperatives should be investing in equity markets?
Rwanda’s Savings and Credit Cooperatives (known as SACCOs) are being encouraged to take more interest in the capital market. A meeting organized by the Capital Markets Authority in Kigali attracted over 50 managers and leaders of several SACCOs in May, according to a story in local media including East African Business Week.
SACCOs are estimated to hold deposits worth over RWF15 billion (US$24.7 million). The CMA suggested they could get better returns for their members’ money compared to investing in deposits at commercial banks, but acknowledged they needed more knowledge of financial investment and there are not enough investment opportunities. It was suggested they could purchase shares in companies listed on the Rwanda Stock Exchange – Bank of Kigali and brewer BRALIRWA are the local listings, or in government securities such as treasury bills and bonds or corporate bonds or commercial paper. BRALIRWA listed in February 2011 and the share price has since more than doubled, and BoK listed last August after raising US$34.8m.
Charles Furaha, the Legal & Corporate Manager at the CMA, was reported as saying:”We want to interest SACCO leaders in the advantages of investing in capital markets as a way of maximizing benefits for their members whose deposits are tucked away in banks.”
Robert Mathu, Executive Director at the CMA, was reported saying that the Rwanda bond market has a total worth of $46.7m. If investors were worried about government bonds after the bad news from Europe, they should think about shares, not only the Rwandan companies but also companies throughout the East African region.
At least 220 SACCOs had been fully licensed in Rwanda to grant loans by 31 January 2012.
A previous article in the local media reported that the Government launched Umurenge SACCO in all districts of the country in November 2011. It is a legal entity which is a cooperative and individuals invest their money and get loans to invest in farming, trade, basic needs and other purposes. Damien Mugabo, the director general of Rwanda Cooperative Agency (RCA), was reported last November that 1.3m peo¬ple are members of Umurenge SACCO country wide. Government started thinking about it in 2008 after a study showed that 52% of Rwandans had no access to formal financial services and were saving money in holes and other unsafe places. Mugabo said: “Umurenge SAC¬COs reach out to members and areas that are unattractive to banks, they can provide access to members of the population who would not normally save in the formal sector and physically not access a classic financial institu¬tion, due to locality and deposit restrictions.”
He added that many people had bad experiences in 2006 with micro-finance institutions (COOPECS) that were mushrooming but were bady managed. Umurenge SACCOs had been making good progress since 2009.