African Capital Markets News

Sub-Saharan African sovereigns outside SA to raise $7bn in fixed income

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.

Calvert Foundation says all investors set to include impact investments in portfolios

A major shift is coming in which all investors, individual and institutional, will commit at least a portion of their investable assets to social impact and investing in harmony with their values. Lisa Hall, President and CEO of Calvert Foundation (www.calvertfoundation.org), recently wrote in a blog post: “In 20 years we will look back and consider these past few years as the turning point in an economic movement”. She says she is seeing “a change in cultural norms and expectations”.
Investing for a return that is both financial and social, in other words impact investing, has gained popularity in the last few years, since about 8 years ago when it was still dubbed “community investing.” This remains a core part of socially responsible or sustainable investing, investing into organizations which help people to improve their lives through affordable housing, jobs, community services such as daycare and healthcare, and more, not into publicly-traded companies.
For example, Calvert Foundation offers impact investments so everyone from individual investors in increments of $20 to large corporations in as much as $20 million can invest in low-income communities and provide capital where there is none. The Community Investment Note (CI Note) pays a return of up to 2% to investors and directs capital to help finance affordable housing, charter schools, health centres, Fair Trade coffee co-ops, and job creation. She says: “These investments in the future of our country and our world are helping to transform the lives of individuals and families.”
The mood is changing in how investors think about risk, return and rewards. Calvert Foundation recently commissioned a study involving 1,065 financial advisors: 72% said they had interest in offering products that provide sustainable investment to their clients, while 38% expressed strong interest in being able to offer those products now. The advisers surveyed indicated that they were willing to recommend impact investments to one-third of their clients, dedicating 10%-20% of their portfolios to this type of investing. Based on these numbers, the study estimates a sustainable investment market of about 2.5% of advisers’ assets under management, or $650 billion. “The change that these dollars can make is both monumental and within the scope of our imagination, our expectations and our ability.”
Calvert works with financial advisors and multiple brokerage firms so investors can include the CI Note in their investment portfolios. Microplace (www.microplace.com), an eBay company started in 2007, helps investors purchase Notes online from as little as $20. Hall says: “We are also developing strategies to bring new investors into the fold. For example, we want to engage the millennial generation through partnerships with colleges and universities, social media outlets and networking events. We are also embarking on efforts to connect diaspora communities and enable individuals to invest in their countries of origin. Other special initiatives that we envision for the future include regional initiatives.”

Business – Starbucks backs jobs
The business community is also getting more interested and large corporations are beginning to understand the power of uniting investment and social conscience. Starbucks Foundation in US has teamed up with the Opportunity Finance Network (OFN) to help create and sustain jobs with a $5m seed investment into Create Jobs for USA programme provides capital grants to select Community Development Financial Institutions (CDFIs), including Calvert Foundation, which provide loans to under-served community businesses. The goal of Create Jobs for USA is to bring people and communities together to create and sustain jobs throughout America.

“Food to my soul”
An investor may see impact investing as just a part of the portfolio until she or he understands the social impact. Marta Santiago, a New Mexico resident and CI Note holder since 2005 said: “Calvert Foundation offered me a great opportunity to give food to my soul when it came to switching from Wall Street to an organization that is entirely devoted to helping the community, especially the needy, in a varied, fruitful, and meaningful manner.”
As US government grants for non-profits gets shut down, they turn to impact investors so they have funds to continue providing critical services. The Nonprofits Assistance Fund (NAF), a Calvert Foundation borrower, stepped in to offer emergency bridge loans, providing credit to cover cash flow delays for groups such as the Northern Lights Community School of Warba, Minnesota, a well-managed and incredibly successful school catering to students who have faced difficulties in traditional public school settings. Since 1980, NAF has provided over $75m in loans to more than 1,700 non-profits.
Calvert Foundation’s partner The Paradigm Project, also accessible to investors through our CI Note, invests in clean-burning stoves that reduce wood consumption and toxic smoke, saving village women in northern Kenya long and often treacherous journeys to collect wood. Although the stove is a solution to just one problem, it is part of restoring dignity to women for whom mercy has been in short supply.
Hall is President and CEO of Calvert Foundation. She has more than doubled the portfolio she managed from $76m to $190m while keeping losses under 1.2% during one of the most economically challenging periods in recent history. Follow Lisa on Twitter @LisaGreenHall

Jacana merges with InReturn Capital, launches $75m private equity fund for SMEs

Entrepreneurs running small and medium-enterprises (SMEs) in West and East Africa stand to benefit from a new $75 million private equity fund. The announcement follows the news on 29 Jan that two long-term partners are merging.
InReturn Capital (www.inreturncapital.com) is a private-equity company based in Nairobi (Kenya) that invests in SMEs across East Africa, and it plans to close a legal merger in the first quarter of 2013 with London (UK)-based Jacana Partners (www.jacanapartners.com), a private equity specialist in SME investments, which has been building capacity in private equity managers in Africa.
The new partnership will offer a significant boost for East African entrepreneurs seeking value-add expertise and growth capital. InReturn was investing in transaction size of $0.5m-$1.3m and the partnership with Jacana will mean increased access to private equity investment, dedicated investment teams on-the-ground coupled with international private equity expertise and larger deal sizes of between $1m-$5m.
InReturn has rebranded as Jacana Partners. The two firms have been working together for 3 years. Jacana’s West African operations (previously Fidelity Capital Partners) rebranded in August 2012. This creates a leading pan-African SME private equity firm with pan-African coverage which will manage the new $75m SME fund expected to close later this year.
Jacana currently operates in 6 markets (Ghana, Kenya, Liberia, Sierra Leone, Tanzania and Uganda) and intends to move into 2 new countries with the new fund, possibly Ethiopia, Nigeria and/or Francophone West Africa. It is the only pan-African private equity company with a permanent commitment to the SME sector.
Jacana has invested over $20m to date in 20 portfolio companies employing over 1,300 people. In East Africa, 5 investments have been made to date in a stone quarry, an eye care centre, a supplier of tarpaulins to the relief sector, a serviced office provider and a logistics company and several other transactions are contemplated in the next few months.
Professor Njuguna Ndung’u, Governor of the Central Bank of Kenya commented in a Jacana press release: “East Africa is undergoing a period of rapid economic growth largely fuelled by the expansion of our small-to-medium sized enterprises – key generators of job creation and GDP growth. The merger being rolled out today brings scale to the financing of SMEs which will boost their contribution to East Africa’s economic growth. It is my expectation that we shall see more similar initiatives to scale up financing to SMEs that lie at the heart of development blueprints for governments in the region.’’

Passionate about Africa’s entrepreneurs

Anthony Gichini, Partner at InReturn Capital said: “The merger of InReturn Capital with Jacana Partners represents a big step forward in private equity investment for SMEs in East Africa. Jacana’s unique model combines international private equity experts with highly-experienced local teams, meaning our entrepreneurs benefit from strategic advice from international business experts as well as dedicated African investment managers on-the-ground who can add-value and provide hands-on management support. This combination is our winning formula which helps us build strong businesses and deliver superior returns.”
Simon Merchant, CEO of Jacana says: “Jacana Partners is a pan-African private equity firm that invests in entrepreneurs, builds successful SMEs and delivers sustainable financial and social returns. We do this because we are passionate about entrepreneurs as the key drivers of job creation and long-term economic development in Africa. Jacana is uniquely structured to overcome the challenges of private equity investing in SMEs in Sub-Saharan Africa. Combining internationally experienced private equity veterans with highly skilled teams on-the-ground, Jacana has the experience, knowledge and resources to structure great deals, grow sustainable businesses and deliver superior returns.
“By merging our African and European operations, we are consolidating our business into a single fund manager, operating under the Jacana brand. As well as investing the remaining capital from our existing funds, the new Jacana will deploy a new $75m SME fund that we are currently in the processing of raising from international investors.
“The new fund will allow us to significantly increase the scale and geographic reach of our operations and will be invested in SMEs in up to 8 countries in East and West Africa. We firmly believe that a unified Jacana operating under the unique Jacana identity is the optimal platform upon which we can fulfill our mission of building the best SME private equity team in Africa, creating sustainable jobs and supporting long-term economic growth.”

Nairobi Securities Exchange launches growth board for SMEs

This week the Nairobi Securities Exchange (www.nse.co.ke) has joined the rush into providing boards for small and medium enterprises (SMEs) with the launch on 22 January of the Growth Enterprise Market Segment (GEMS).
GEMS is designed to offer a regulatory and trading environment to meet the need of SMEs. The aim is that they can raise good amounts of initial and ongoing capital. They should also be able to boost their profile and enjoy more liquidity in their shares.
Chairman of NSE Eddy Njoroge said in a NSE press release: “The establishment of a GEMS market in Kenya will pave way for the listing of small and medium-sized enterprises on the exchange, which is a major driver of our country’s economy.” He also thanked the regulator for “showing commitment and support” in establishing GEMS. CEO Peter Mwangi added that the establishment of this market will become a fundamental contributor to the stability of Kenya’s overall financial system.
Kenya has a good community of experienced advisers to support companies who wish to list. The key intermediaries are the Nominated Advisors (NOMADs), who will assist companies to list on GEMS and to comply with good corporate governance and global best practices. Other professionals with background on GEMS include brokers, accountants and lawyers.
The NSE plans to offer a directors’ course on corporate governance to the directors of the “mid cap.” Companies, meaning those with middle ranges of market capitalization.
The NSE believes that SMEs are a key sector for achieving Kenya’s Vision 2030 and the United Nations Millennium Development Goals. Commenting during the launch,.
Eligibility criteria for companies wishing to list include: Being a registered public company; minimum fully paid-up capital of KES 10 million ($114,400); at least 100,000 shares in issue and free transferability of shares; adequate working capital and solvency; track record of operations for at least a year but no profitability record needed; 5 directors, of which a third should be non-executive; directors with no bankruptcy, fraud, criminal offence or financial misconduct proceedings for 2 years; competent board and senior management – at least 1 year experience in the business; A third of the board members must have completed Directors Induction Programme and the rest have to complete it within 6 months of listing; all issued shares to be immobilized; 15% of the shares must be available for trading & held by at least 25 independent shareholders within 3 months of listing; Controlling shareholders lock in for 24 months; NOMAD appointed by written contract.
The NSE is Kenya’s main securities exchange, offering listing and trading in equities and debt.

Kenya steps up corporate governance

Kenya is seeking to step up corporate governance in the capital market and guard against risks that threaten the financial system. The Capital Markets Authority (www.cma.or.ke) has announced today (11 January) that it has appointed a 9-member Capital Markets Corporate Governance Committee.
CMA Acting Chief Executive Paul Muthaura commented in a press release: “Since the issuance of the ‘Guidelines to Corporate Governance Practices by Listed Companies’ in 2002, there have been several developments nationally, regionally, and internationally precipitating the need for special attention to be paid to corporate governance to guard against risks that would threaten the financial system. Recent marketplace activities have pointed to the need to review the appropriateness of our regulatory regimes in light of the complexity of the challenges before us to ensure that we succeed in striking appropriate balances and manage costs of compliance.”
He said the committee should guide regular reviews of corporate governance standards for listed companies, in line with international best practice and trends; drive amendments to the corporate governance guidelines and regulations; identify legal and institutional strengthening requirements; address weaknesses in enforcement; and strengthen capacity building and professionalism of key stakeholders.
Ms Catherine Musakali, current chair of the Institute of Certified Public Secretaries of Kenya,will chair the committee and the members are: Ms Maryanne Macheru of the Registrar of Companies/Attorney General’s Office; Ms. Jackline Nyandege of the Ethics and Integrity Institute, nominated by the State Corporations Advisory Committee; Mr. Job Kihumba representing the Nairobi Securities Exchange; Rev. Geoffrey Njenga from the Centre for Corporate Governance; Mr. Mirie Mwangi from the University of Nairobi Business School; Mr. Mahmood Manji representing the CMA Board; Dr. Gituro Wainanina appointed as an independent member with experience on Corporate Governance from a regulatory perspective; and Mr James Mworia representing listed companies.

Rise of pension giants set to transform investment in Africa

New giants are arising in African investments – the domestic pension funds. In Nigeria the National Pensions Commission (PenCom) estimated registered pensions to be worth US$14bn in June 2011, with asset values up by 8% in three months; Namibia’s Government Institutions Pension Fund alone is worth some $6bn; South Africa’s pension funds grew at a compound annual growth rate of 14.3% in US dollar terms over 10 years to December 2010, including over 28% in 2010 and Tanzania’s pension industry was audited at $2.1bn for 2010, and growing by 25% a year.

The number of pensioners is set to soar, according to United Nations figures, as the number of people over 60 years in Africa will rise from 55m in 2010 to 213m by 2050, compared to 236m Europeans over 60 years old by 2050. Current pension funds cover only 5%-10% of Africans ranging from 3% in Niger but it used to be 80% in North African countries such as Egypt, Libya and Tunisia. Pensions are not available at all in some countries.

Regulatory reforms are driving the growth of African pensions. Recent reformers include Cote d’Ivoire, Gabon, Kenya, Nigeria, Senegal and Uganda. Ghana created a National Pensions Authority with a 2010 act. Reform in Kenya, including investment guidelines and a new regulator, resulted in strong growth and good investment returns. Tanzania passed the Social Security Regulatory Act in 2008. The rising pension industry is likely to boost fund management and equity industries, exits for private equity and even to fill some of the $45bn annual funding gap for infrastructure. For instance, In January 2012, Tanzania’s National Social Security Fund signed an agreement to finance 60% of the $137m cost of building Kigamboni Bridge. South Africa’s $130bn Government Employees Pension Fund is a major investor in the Pan-African Infrastructure Development Fund which raised $625m in 2007 and is targeting $1bn on its second offering.

For more details on Africa’s pension industry, please check my article published in The Africa Report magazine and website, here is the link www.theafricareport.com and for brief profiles of 6 giant African funds, check here.

Kenya’s CMA regulator pushes capital markets development plan

Kenya’s Capital Markets Authority (CMA) is pushing the development of the capital market through today’s (16 Oct) launch of a 16-member steering committee to formulate the Capital Markets Master Plan (CMMP) covering the next 5 years of development.

The plan is to be finished within 9-12 months, after consultations that started in November 2011. The committee includes Paul Kavuma as independent chairperson, the acting Chief Executive of CMA Paul Muthaura, Donald Ouma of the Nairobi Securities Exchange and representatives of the Ministry, Central Bank of Kenya, nominees from the Kenya Association of Stockbrokers and Investment Banks, Kenya Bankers Association and the Fund Manager Association.

The CMMP aims to ensure that Kenya’s capital market supports national economic growth and meets future challenges from regional competition and globalisation as Kenya endeavours to be an international financial services hub, according to this press release from the CMA.

Meanwhile the CMA will continue to engage with the industry to implement current reforms geared at deepening and developing the capital markets, including restructuring the bond market, introducing infrastructure and county bonds, introducing real-estate investment products, facilitating access to capital by small and medium enterprises (SMEs), reviewing the legal framework, and the continuing demutualization of the Nairobi Securities Exchange.

Africa’s best real estate developer is private equity group Actis

Leading African private equity group Actis has won the title for “Best Developer in Africa” in the 8th annual global Euromoney Real Estate Survey run by finance magazine Euromoney. To collect data for the award, Euromoney was canvassing the opinions of senior real-estate bankers, developers, investment managers, corporate end-users and advisory firms in over 70 countries since March. It was the biggest Euromoney real estate poll with over 1,900 responses. Actis invests mainly in retail and office developments in high-growth markets such as Ghana, Kenya, Nigeria, Tanzania and Zambia. It launched its first real estate fund in 2006 and concentrates on institutional quality investments. It is sub-Saharan Africa’s most experienced private equity real estate investor and developer, according to a press release.

Current Actis developments include Ghana’s first green-certified building One Airport Square in Accra; East Africa’s biggest retail centre Garden City in Nairobi, and Ikeja City Mall in Lagos which welcomed 45,000 people on its first day of trading in December 2011. Past investments include Accra Mall in Accra and The Junction in Nairobi.

According to the press release, David Morley, Head of Real Estate at Actis, said: “Sub-Saharan Africa has a population of 800 million people and is the fastest urbanising region in the world; an increasingly sophisticated consumer class seek places to live, eat, shop and relax in the face of chronic undersupply. There is tremendous opportunity for those who take up the challenge and we are very proud to see our work recognised in this way.” Euromoney Editor Clive Horwood said, “The winners of this year’s Euromoney survey are those that exhibited the ability to innovate and make best use of the inherent strengths of their organisation. In Africa, in particular, there are great opportunities for those companies best equipped to operate in challenging markets. Through the Euromoney real estate survey, the market has recognised Actis as the leader in this field.”

Nairobi’s Garden City
In July Actis confirmed its investment in Nairobi’s Garden City, a 32-acre mixed use development on the recently expanded 8-lane Thika Highway. This will be a 50,000 sqm retail mall, with commercial premises, 500 new homes and a 4-acre central park, offering family friendly leisure space for Kenyans and visitors to the city. The park will also house an outdoor events arena for the staging of concerts and shows. Groundbreaking is due in December 2012 and completion targeted for May 2014, according to a press release.

Actis is working with leading retailers, including a flagship store for South Africa’s Game, their first in Kenya. Letting is underway with specialist agents Knight Frank Kenya and Broll in South Africa. There are detailed discussions with other foreign retailers looking to enter the rapidly-expanding Kenyan market, such as South African fashion group, Foschini. There is a strong focus on environmental features and the aim is to achieve the first LEED (Leadership in Energy and Environmental Design) certification for a retail mall in East Africa. This brings down operating costs for tenants by reducing electricity and water consumption.

Accra Mall sold
In May Actis confirmed that it had sold its 85% shareholding in Ghana’s Accra Mall to South Africa’s commercial and retail property developer Atterbury and financial services group Sanlam. Actis managed the development process, invested the equity and raised the debt to finance the project, working in partnership with renowned Ghanaian entrepreneurs, the Owusu-Akyaw family. The mall opened its doors in July 2008 fully let, and attracts 135,000 shoppers each week, according to a press release.

Accra Mall is Ghana’s first A-grade shopping and leisure centre, home to international brands such as Shoprite and Game, as well as Ghanaian brands including Kiki Clothing and Nallem. The trade sale demonstrates an increasing interest in Ghana by foreign investors and also reflects the acute demand for high quality real estate assets in sub-Saharan Africa.

Actis 100% owned
Also in May, Actis said it had bought the UK Government’s remaining 40% shareholding in the company. In the deal announced on 1 May, the government will receive a cash payment of US$13m (£8m) and will participate in future profits as Actis’s investments are realised over the next decade. To date, Actis has invested £1.7bn on behalf of the UK government’s direct finance institution CDC and has returned £3.1bn to CDC and by extension the British taxpayer.

Paul Fletcher, Senior Partner at Actis, said: “When Actis opened for business in 2004 our purpose was to attract private capital to countries that were dependent on aid and to legitimise them as investment destinations. Over the last eight years our work in Africa, Asia and Latin America, investing in over 70 companies employing 113,000 people, has shown what is possible. Successive governments have shown real vision backing a private sector model like Actis. We are pleased that HMG has realised the value of their decision to support Actis from the start. We look forward to continuing our work, investing in high quality companies in high growth countries and delivering strong returns for our investors.”

Rerating of emerging and frontier markets debt risks will boost issues

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.

Uganda’s power distributor Umeme says it plans Nairobi and Uganda IPOs this year

Uganda’s only power distributor, Umeme, said it plans to raise capital to invest in Uganda’s electricity sector through an initial public offering (IPO) on the Ugandan and Nairobi securities exchanges later in 2012. Umeme is a distribution company and is 100% owned by private equity firm Actis, according to this report on Reuters.
The news came on 6 July at the switching of 5 turbines to add 50MW to the power grid as part of the $860 million Bujagali 250MW hydropower project, one of Africa’s largest power schemes. Umeme has a 20-year electricity distribution concession. Managing director Charles Chapman says the company has opted for the IPO as electricity is now available – Uganda had been suffering power cuts before Bujagali capacity was added – and there was agreement on regulatory targets.
The company would not say how much it hopes to raise and has not finalized plans for the IPO, but Reuters suggests it could be 20% of the shares. The report quotes Chapman: “The initial public offering (IPO) will support Umeme’s capital raising initiatives to finance the continued development of the electricity distribution network, including projects such as prepayment metering and energy loss reduction. We believe that Umeme will be stronger, more transparent and accountable with the input of our customers and employees as shareholders.”
He adds that customers are up to about 460,000 in 2011 from 354,839 in 2009. After power sector unbundling, power in Uganda is generated by the Uganda Electricity Generation Company and transmitted to Umeme by the Uganda Electricity Transmission Company.
According to this blog story, Umeme has already put in its application to the Capital Markets Authority in Uganda and has appointed Stanbic Bank (Uganda) as Transaction Advisor and African Alliance (Uganda) as Sponsoring Broker. Writer Angelo Izama comments: “The company is a safe investment given its monopoly and demand from customers. Many who worry about the risks it faces will look to political risk something to which we will return. Suffice to say that a great degree of the risk will likely be offset when the company lists given the divesting of its ownership to locals.”