Archive for the 'Tanzania' Category
January 4th, 2012 by Tom Minney
Although the number of investors from other East African countries opening trading accounts at Kenya’s Nairobi Stock Exchange (www.nse.co.ke) is still very small, it is growing more consistently in the last 2 years than other categories of investors. According to data to 30 Sept released by Kenya’s Capital Market Authority (www.cma.or.ke), East African individual investors opened 97 securities accounts at Kenya’s Central Depository and Settlement Corporation (www.cdsckenya.com). This compares to 92 accounts opened in the full year 2010 and 79 in 2009.
By comparison Kenyan individual investors only opened 27,669 accounts in the 9 months to September 2011, compared to 120,756 accounts opened in 2010 and 52,836 in 2009. Kenyan equity trading has remained subdued as investors say high interest rates make them choose government debt securities over equities.
One potential reason for the East African interest, according to an article in the East African , is that Ugandans are opening trading accounts at the NSE in anticipation of the IPO of electricity distributor Umeme (www.umeme.co.ug) scheduled for 2012. Umeme is expected to cross-list at the NSE and the Ugandan Securities Exchange (www.use.or.ug). Some investors open multiple accounts ahead of a potentially “hot” initial public offering (IPO) of shares, where they hope to sell their initial allocation quickly and make a quick profit, as this is likely to maximise their share of allocation if the IPO is oversubscribed.
Trading experience shows that cross-listed East African shares such as Centum, Kenya Airways, Jubilee Insurance, trade more on the NSE compared with the Dar es Salaam Stock Exchange (www.dse.co.tz) and USE. The increased liquidity in Nairobi means that East Africans are better off having a trading account at the NSE. The paper comments that Rwandans, Tanzanians and Ugandans are probably realising this fact and also taking positions ahead of the listing of some of their firms on the NSE by opening more CDS accounts in Nairobi: “Investors will go the extra mile to open and operate, as proxies, CDS accounts in the names of their relatives or friends who know nothing on trading in shares. Expect an influx of Rwandese, Tanzanians and Ugandans at the NSE in 2012.”
November 3rd, 2011 by Tom Minney
East African venture capital firm InReturn Capital (www.inreturncapital.com) has entered a partnership with Hurlingham Eye Care Services group (HECS – hurlinghameyecare.co.ke), according to a press release issued on 2 November. InReturn Capital is an impact investing company which aims to generate positive social impact and profits by investing in small and medium enterprises (SMEs) in the East African region, from its offices in Nairobi, Kenya and Dar es Salaam, Tanzania. It has Jacana Venture Partnership (www.jacana.org) as an investor and key partner in fund management, and several Dutch and international partners.
HECS has been operating optical shops and a diagnostics centre around Nairobi since 2000 and in April 2010 opened the Eagle Eye Laser and Diagnostics Centre at the 5th Avenue Building on Ngong Road, close to the Nairobi Hospital. This aims to be a leading provider of eye-care surgery and diagnostics in East Africa, particularly long-term eye problems. The centre is the first clinic in East Africa to offer Lasik surgery, which is the most advanced type of laser surgery for vision correction. Other eye surgeries include cataract, glaucoma, multifocal refractive surgery, as well as a broad variety of eye diagnostics using modern technology. The founders, Dr. Ilako, Dr. Kimani and Dr. Kiumbura, all have a long track record in eye surgery and have teamed up with Dr. Gaeckle, one of the most successful and experienced eye laser surgeons in Germany.
InReturn already has investments in construction, infrastructure and energy and is keen to expand into healthcare. It linked with HECS in July 2011. It provides hands-on support to HECS in strategic focus, human resource management and marketing and financial administration processes, as well as joining weekly management meetings and being a member of the board. Its investment in the surgery centre will assist in expanding and improving operational capabilities while the centre prepares to expand within the region. The plan is also to set up a non-profit unit that will provide free eye-care health services such as free surgeries and consultations to the lowest income groups.
Dr. Kiumbura, CEO and co-founder of HECS commented: “There is a saying in my language that two are always better than one. The partnership with InReturn has just proven this to be true one more time! It has been a time of improvement in the organisation, from personal growth to organizational transformation, and to a more efficient and focused entity from the time we started working together. I have no doubt in my mind that together we will grow to unchartered heights in provision of quality affordable eye-care in this region in the coming years.”
Eelco Benink, Investment Manager of InReturn commented: “We are excited to invest in this state-of-the-art eye-care institute in Kenya. The doctors are amongst the best in their field and the technology available at the Eagle Eye Laser Centre is unparalleled in East Africa. Together with the optical shops it forms the only one stop shop for eye health care in greater East Africa. Our partnership will lead to further expansion of the HECS group, and it will contribute to the growth of quality medical industry in the region.”
Other InReturn investments include Vipingo Stone, Equator Shipping on Lake Victoria and an engineering company developing micro hydropowerplants.
October 6th, 2011 by Tom Minney
The Initial Public Offering (IPO) of 58,841,750 shares at TSh 475 (US$ 28 cents) each in Tanzania’s Precision Air Services is set to start on 7 October and continue to 28 October. The results are to be announced on 11 November and the company expects to list and start trading on the Dar Es Salaam Stock Exchange www.dse.co.tz from 8 December. The minimum application is for 200 shares.
The airline aims to raise TSh27.9 billion (US$16.7m) to finance expansion, with most dedicated to capital spending and 6.5% for working capital. The IPO represents 30% of the company’s shares. Chairman Michael Shirima was quoted in local newspaper, The Citizen, as saying the offer price was discounted by 11% from the expert valuation.
The company prospectus was to be available on the Precision Air website (www.precisionairtz.com) from 4 October, although we cannot find it, and printed copies are also to be available from all stock brokers by today, 6 October.
At a press briefing, Shirima invited the government, individuals and public institutions to contact registered stock brokers and some banks for the application forms, noting that people might buy the shares in any CRDB Bank branch or Stanbic Bank branches across the country. He told: “It should not be surprising if the government buys shares and has partial ownership of the company. Precision Air is a Tanzanian airline and 51% of the shares should be owned by the locals.”
Kenya Airways currently owns 49% of the company. Precision Air is looking at new routes to the Democratic Republic of Congo (DRC) and Angola. During the briefing, Precision Air CEO Alfonse Kioko said talks with Angolan authorities were in final stages and they may start the route early in 2012: “The fleet expansion plan includes the increase of the number of aircraft and launching of new routes.” The airline was launched in 1993.
August 25th, 2011 by Tom Minney
Kenya’s financial services holding company British-American Investments Company Ltd.(www.british-american.co.ke) issued a statement on 23 August outlining that its initial public offering (IPO) had only attracted 60.09% of the targeted KSh5.85 billion ($63million). The company owns 2 insurance firms and an asset manager and said it will reconsider its plans, which had included real estate and regional expansion, including in South Sudan.
The listing was previously detailed on this site here.
The company successful raised KSh3.5bn by selling 390.6m shares at KSh9.00 each. It meets the minimum 50% requirement in its prospectus to go ahead and with 28,000 shareholders is permitted to list on the Nairobi Stock Exchange main board. The shares are due to start trading on the Nairobi bourse on September 2.
According to stockbroking analysts, foreigners were largely absent due to risk aversion and worries about the Kenyan economy. Reuters quotes George Bodo, a research analyst at ApexAfrica. “The timing of the IPO came … when the global markets were risk averse and foreign investors were cutting risky positions internationally.” International problems include the US economy and the eurozone debt crisis. “It was unfortunate that the US debt crisis escalated right in the middle of the offer period, causing loss of appetite amongst institutional investors especially those outside Kenya,” said Group chairman Nicholas Ashford- Hodges, according to a report in “Business Daily” newspaper.
Foreign investors normally account for 70% of action on the NSE, but Reuters says they are less active and this has been made worse as the Kenyan currency declines against world currencies.
Local retail investors recorded the highest participation, taking up 70.9% including a 142% oversubscription of the 195m shares offered to them; qualified institutional investors hung back and took up 23.7%, just over a third of their 240.5m shares allocation; employees, agents and individual life policyholders snapped up 5.2% and foreign investors were almost absent, taking up only 0.3% of the offer, less than 1% of the 195mn shares reserved for them.
Analysts said the poor macroeconomic environment in Kenya did not augur well and inflation in Kenya hit 15.53% in July, driven by food and fuel prices. Rising interest rates have dissuaded many investors from seeking funds from banks to invest in shares and banks were also not willing to take shares as collateral. Gregory Waweru, an analyst at Kestrel Capital, was reported as saying: “There was competition for funds due to tight liquidity in the market.” Many investors have not yet realized substantail returns from East Africa’s biggest IPO which was Safaricom’s listing in 2008.
British American had planned to spend KSh2.5bn on property development and group managing director Benson Wairegi said in a statement: “The property development initiative where the bulk of the funds were targeted will be reviewed with a view to scaling it down.”
The company was also to set aside KSh1bn for regional expansion and KSh1.28 bn to expand its Kenyan operations, including the asset management business and to launch new funds for Kenyans in the diaspora as well as local and international investors and to comply with a proposed law for real estate investment trusts.
Mr Wairegi said the company may consider using bank loans to finance other planned projects: “The group has no other gearing despite the very strong balance sheet, which has become even stronger with the raising of KSh3.5bn. We shall, therefore, be able to easily leverage to implement all the profitable projects that have been lined up,” according to a report in “Business Daily”.
British American launched a Ugandan subsidiary in July and at the time the chairman said next stop would be to open offices in Rwanda, Tanzania and South Sudan.
August 25th, 2011 by Tom Minney
As the East African region moves towards faster integration, Tanzania is preparing to ease controls on the amount of shares foreigners can buy, in line with changes in the rest of the region. The Dar Es Salaam Stock Exchange (www.dse.co.tz) is also hoping to increase from 15 to 18 listed companies and is preparing for an initial public offering (IPO) for Precision Air (www.precisionairtz.com) during September and cross-listings of 2 mining firms listed in London.
Gabriel Kitua, CEO of the Tanzanian bourse, told Reuters on 24 August at a meeting organised by the Nairobi Stock Exchange: “Tanzania is not exactly a closed market. Up to 60% of any listed security is available to any citizen of the world, 40% is reserved for Tanzanians… with time, the control will be erased especially as we go to the regional monetary union where free movement of funds across the countries will automatically be there.”
Reuters says the 5-nation East African Community (EAC) bloc of Rwanda, Burundi, Uganda, Tanzania and Kenya aims to have a monetary union in place in 2012 and move to a political federation by 2015. It reports that Tanzania has the tighter capital controls, including barring foreigners from investing in government securities.
Kitua also said that the approval of the cross-listing of African Barrick Gold Corporation (www.africanbarrickgold.com) is advanced: “The approval process is almost complete”. He added “The other one is in very initial stages … it is a mining company,” according to Reuters.
Barrick (ABX, listed on the Toronto and New York stock exchanges) owns 73.9% of African Barrick Gold and raised $884 million through offering the rest of the shares in an IPO on the London Stock Exchange in March 2010. Barrick describes itself as “the gold industry leader, with a portfolio of 26 operating mines and advanced exploration and development projects located across 5 continents”.
Precision Air’s listing application was received and being considered by the Capital Markets and Securities Authority (CMSA) in February, according to local news reports. At the time it was reported that Precision Air sought to raise $25m (about TSh38bn) in the IPO. Kenya Airways owned 49% and Michael Shirima, the founder and chairman of the airline, owned 51%. The IPO would see their stakes diluted to 34.2% and 34.6% respectively.
Reuters also adds that East African Breweries Ltd of Kenya is expected to offload its 20% stake in Tanzania Breweries Limited in a public offering. Kitua rejected claims in a regional paper earlier this year that EABL had been compelled by Tanzanian authorities to offer the shares at a set price: “In capital markets there is no compelling of people. This is a free market economy and decisions are done by the board of directors of the companies and no one can interfere with that.”
The agency says the most heavily traded shares on the DSE are banks such as CRDB and National Microfinance Bank and manufacturer Tanzania Cigarette Company. TBL is the biggest by market value.
“For the last 12 months the Tanzania share index has risen by 17% and the all share index by close to 7%. The market has been growing,” Kitua said. The Tanzania share index excludes shares cross-listed from the NSE, including Kenya Airways. Kitua said the postive performance is due to good earnings by listed companies and the stable Tanzanian economy: “There are signals that the trend will be on an increase for the next 6 months.” He warned that inflation is past 10% and is emerging as a challenge.
The DSE delisted the National Investment Company (NICOL) with effect from 6 July after a 1-month suspension from 6 June and it become the first company in the 12-year history of the Tanzanian bourse to be delisted. This was on account of the firm’s failure to submit 2009 and 2010 financial results, and failure to comply with a directive from the DSE Governing Council about plans to sell 22m shares it owned in National Microfinance Bank (NMB), which is also listed.
July 15th, 2011 by Tom Minney
British American Investment Company (Kenya) Ltd (www.british-american.co.ke) launched its initial public offer (IPO) on 12 July, aiming to list on the Nairobi Stock Exchange. It aims to raise KES 5.58 billion (US$62.2 million) for expansion in the offer which is open until 5 August.
British American is issuing 650 m new ordinary shares at KES9 each. East African retail investors and foreign investors have each been allocated 30% of the shares, institutional investors 37% and employees, agents and individual life policy holders get the remaining 3%.
The offer was launched by Prime Minister Raila Odinga. He urged more people to use insurance products, and said market penetration is only 2.3% of GDP, according to Kenyan Broadcasting Corporation. The Standard newspaper reports him saying “I would like to take this opportunity to assure investors that Kenya is on a renewal path.”
Expansion: “missing middle” and new products
According to a report in Kenya’s Business Daily newspaper, of the money raised KES1 bn will be used for new investments and entry into the regional market while KES 1.3 bn would be used to grow its Kenyan insurance businesses and to expand its asset management business, including launching new funds for Kenyans in the diaspora as well as local and international investors.
The company will use KES2.5 bn to set up real estate investment trusts when the proposed law comes into effect and to develop property investments, including commercial buildings and housing units. KES750 m is to offset a loan from Commercial Bank of Africa (CBA) and KES 300 m is for offer expenses.
The paper reports British American’s chairman Nicholas Ashford-Hodges saying funds raised would be used to boost the company’s operations in Kenya and expand to regional markets: “This IPO will give British American an opportunity to increase the scope of its operations and widen its footprint.”
The company hopes to seize emerging opportunities through innovative products such as micro-insurance and bank-assurance. According to the Standard, managing director Benson Wairegi said the company is developing more products for the retail market and small and medium-sized businesses: “We seek to fundamentally redefine the scale and scope of the insurance sector in Kenya and the wider region. Our established model of scale, reach and multi-layered selling will also be extended to the retail market and SMEs in the wider geographical region.”
Regional expansion – Uganda, Tanzania, South Sudan, Rwanda
On 7 July, BAT launched an insurance services business in Uganda through a subsidiary, Britam Insurance Company (Uganda) Limited, which has a capital of UGX5.6 bn ($2.2m). It also aims to open offices in Tanzania, Rwanda, and Southern Sudan.
Profit turnaround
British American is also the holding company of British American Insurance Company (Kenya) Ltd and British American Asset Managers Ltd (BAAM).
The market capitalization of the new company will be KES19.4bn ($216.3m), the highest among listed insurance firms. CfC Insurance Holdings, which was listed by introduction in April, was valued at KES6.85bn as at the close of trading yesterday, Jubilee Holdings Ltd at KES8.86bn, and Pan African Insurance at KES1.92bn, according to the paper.
Business Daily reports that British American Group posted KES2.7 bn in profits after tax last year, up from KES421 mn loss in 2009. The company made KES4.68 bn (KES 196m in 2009) in investment income and KES220 m (KES 32 m) in other income.
February 23rd, 2011 by Tom Minney
Leading international private equity firms are investing $79 million to build and acquire mobile phone towers in sub-Saharan Africa. Investec Asset Management (www.investecassetmanagement.com), the International Finance Corporation (www.ifc.org, a member of the World Bank Group), and the Netherlands Development Finance Company (www.fmo.nl) are taking equity in IHS Nigeria Plc (www.ihsnigeria.net) which says it is the largest provider of telecommunications infrastructure in West Africa.
IHS is reported to have more than 2,700 towers under its management and is still expanding its ownership and leasing operations throughout Africa. It has subsidiaries in Ghana, Sudan and Tanzania and employs 800 people, according to the website and is listed on the Nigerian Stock Exchange. IHS Executive Director, Issam Darwish, said in a report on the website that the fund would enhance telecommunications services in the country by breaking current barriers in the sector. Investec made the money available via its African private equity funds. The transaction is subject to regulatory approval.
According to the report, Darwish said: “IHS is dedicated to partnering with operators and investors across the African continent and is thrilled to add the IFC, FMO and Investec Asset Management’s private equity fund to our shareholder base. Since 2001, the company’s core strategy has been to serve the growing needs of the telecommunications operators in Africa and enhance the quality of the network performance.
“The investors understand the unique needs of the growing telecoms sector and the changing competitive landscape. The additional financing package also includes up to $115 million of IFC-led senior debt, mezzanine and syndicated loans, which will allow us to continue our leadership role in providing managed and co-location services to mobile operators and users in Africa.”
Darwish said IHS intended to bring down costs, expand coverage, accelerate technology rollouts and improve the quality of service for subscribers in Africa.
Last October, Nigerian President Goodluck Jonathan had called for more investments in the telecoms sector as Nigeria sought to become Africa’s telecommunications hub.
Yvonne Bakkum, Director Private Equity, FMO, reportedly said: “Access to telecommunications continues to be essential for the economic and social development of Africa. IHS increases the efficiency and quality of existing networks and helps operators accelerate network expansion into rural areas. FMO is proud to contribute to this through our investment in IHS, alongside Investec and IFC.”
IFC is a member of the World Bank Group and the largest global development institution focused on the private sector in developing countries. Andrew Gunther, Senior Manager, IFC Infrastructure and Natural Resources in Africa and Latin America, said: “Broadening access to affordable mobile telecommunications services remains a crucial part of development across Africa. IHS’ track record of improving quality while reducing costs will continue to provide savings that benefit all constituents of telecommunications in Africa.
“With this investment, IFC is helping improve quality of service, expand network coverage, reduce deployment, operating and usage costs – while accelerating the innovation that governments and operators can deliver throughout Africa.”
Investec Asset Management is one of the largest third-party investors on the African continent. It was established in 1991 and has grown into an international business managing approximately $80 billion (end Sept 2010). Mark Jennings, Investment Principal, Investec Asset Management: “IHS has a 10-year track record of profitable growth, is led by an energetic and experienced management team which includes the founders of the business, and is poised for substantial further growth which the new funding will assist. We are pleased to be associated with this dynamic business and team.”
In October 2009, the IFC invested $100 million into Helios Towers Nigeria Ltd. (www.heliostowers.com), set up by Helios Investment Partners as reported on this blog. HTN builds and maintains a network of telecommunications towers and leases space to providers of wireless telecommunications services.
December 16th, 2010 by Tom Minney
The International Finance Corporation (www.ifc.org), a member of the World Bank Group (www.worldbank.org), and East Africa’s Securities Industry Training Institute (SITI), based at the Uganda Securities Exchange (www.use.or.ug) have signed an agreement to broaden training. This will boost opportunities for market participants, regulators and others in East Africa’s capital markets sector, with the aim of strengthening and supporting the growth of securities markets in the region.
SITI will be licensed to use IFC-developed securities markets training material for the next 10 years to train and certify thousands of securities market participants in Kenya, Rwanda, Tanzania, and Uganda. The material is developed by the Efficient Securities Markets Institutional Development (ESMID) Programme, a joint project by the Swedish International Development Cooperation Agency (www.sida.se), which provided $5.5 million, the IFC and the World Bank.
IFC Principal Investment Officer Aida Kimemia said in a press release: “Supporting the development of securities markets is a priority for IFC in Africa. This agreement will make available world-class training materials to thousands of people in East Africa, improving their skills and knowledge and giving them the tools that will support broad economic growth in the region.”
Joseph S. Kitamirike, Chairman SITI board and CEO, Uganda Securities Exchange, said: “We at SITI are very pleased to have cooperated with IFC to develop the training materials. We know that they are cutting edge and will help us develop the personnel we need to grow the securities markets in East Africa. On the strength of this successful cooperation with IFC, we are confident we will undertake more activities of this nature that will ensure proper market development.”
The ESMID programme aims to help develop well-functioning securities markets in Africa, with a goal of supporting key economic and social development needs with high developmental impact, such as infrastructure, housing, and microfinance. Despite efforts over the last 12 months this blog has been unable to contact the East Africa office directly to find out more, as the officers do not seem to reply to emails or phone messages.
Its funded programmes are to help simplify regulations and procedures for issuing and trading bonds; strengthen market infrastructure; build capacity of market participants; facilitate the regionalization of securities markets; and support demonstration transactions. In East Africa, it reportedly works with central banks, securities regulators, stock exchanges, and market participants, such as brokers, dealers, investment banks, and institutional investors. It also works in Nigeria, according to the website.
The ESMID-developed training material consists of 3 courses and 5 seminars: Fundamentals Securities Course; Securities Certification Course; Officers and Directors Course; Bond Trading Seminar; Corporate Finance Seminar; Corporate Governance Seminar; Bond Underwriting Seminar; and Portfolio Management Seminar.
The courses, which will be required for licensing of market intermediaries, have already benefitted more than 700 course participants in East Africa.
The IFC, a member of the World Bank Group, is the largest development institution focused on the private sector in developing countries. It says “our new investments climbed to a record $18 billion in fiscal 2010.”
November 9th, 2010 by Tom Minney
Demutualization of Tanzania’s Dar es Salaam Stock Exchange (www.dse.co.tz) is to be driven by a National Demutualization Committee (NDC), under the guidance of the Capital Markets and Securities Authority (www.cmsa-tz.org).The exchange is to start looking for a consultancy firm to develop the demutualization strategy, according to a report in the Tanzania Daily News (www.dailynews.co.tz).
Demutualization would probably involve turning the exchange from being a members’ association into a profit-seeking company, which could itself be listed, and would have a range of shareholders. This could increase accountability and responsibility as well as the ability to raise capital for investment. In some cases, demutualization means the exchange no longer has a monopoly.
The paper reports DSE Chief Executive Officer Gabriel Kitua as saying the process is expected to take 12 months, after the consultant hands over the draft of demutualization strategy: “The procurement of the consultancy firm is at initial stage, once approved, we consider demutualised process will take about 12 months.” He said the timing is good and could lead to further integration as other stock exchanges in the East African Community are also transforming themselves. “At a proper time, these private sector institutions may decide to come together and form one regional exchange.”
The NDC committee has already been given the terms of reference. Its members are from the CMSA, DSE, Treasury, Bank of Tanzania, and Attorney General’s office. The CMSA CEO, Dr Fraten Mboya, said under the old structure it was the members (usually the stockbrokers) of the DSE that had rights of ownership, decision-making and trading. According to the Daily News, he said: “(The change will) establish a more flexible governance structure that fosters decisive action in response to changes in the business environment.. For example, it will push the DSE to make efforts necessary for generation of adequate products in the market.”
October 17th, 2010 by Tom Minney
The African bond market continues to expand, with many countries raising money on world capital markets. They are taking advantage of low global interest rates and many investors turning to African debt, partly fuelled by better economic management in Africa. Yields are near zero in Europe, the U.S. and Japan, and investors are looking to new frontiers.
Africa has massive capital needs to fuel its anticipated long growth run. The temptations to rack up debt again remain. The World Bank estimates that Africa needs to spend $93 billion a year on power, transport and water projects over the next decade to lift growth in the world’s poorest continent.
Bloomberg news agency reports that Nigeria appointed Barclays Capital in October as an adviser for its planned $500 million Eurobond. Zambia plans to raise $1 billion on the back of a planned sovereign credit rating this year.
Other African nations are dusting off plans to sell Eurobonds – bonds issued in an international currency, not the local one – to international investors. Many plans had been shelved in the global financial crisis in late 2008.
Bloomberg quotes Tanzania’s Deputy Finance Minister Omar Yusuf Mzee as saying that Tanzania is returning to work on its bond plan after postponing a sale of $500 million of the securities in 2008.
Angola has been talking for some time about raising $1 billion – $2 bln through international bonds this year. It received a B+ credit rating from Standard & Poor’s and Fitch Ratings in May.
Kenya plans to wait on its planned $500 million sovereign bond as the global recovery is “still uncertain,” according to Geoffrey Mwau, economic secretary in the Finance Ministry reportedly in August.
Sudan is next year to seek investors from the Persian Gulf region for $300 million of Islamic bonds because U.S. economic sanctions have denied the country access to other international markets, central bank Governor Sabir Hassan told the agency in an interview in Khartoum on 6 Sept.
Economic growth for Africa is expected to be more than 5% a year, says Bloomberg, fuelled partly by investment from China and India and partly by its own growing consumer spending. Infrastructure to be upgraded includes obsolete road and rail networks and power generation, where may countries face more power shortages – Bloomberg says that a continent of 1 billion people that has electricity capacity equivalent to Spain.
Bloomberg cites Samir Gadio, an emerging- markets strategist in London at Standard Bank Group Ltd: “The timing is perfect. Global yields are extremely low and that’s pushed a lot of countries to tap international markets. We’ll see good demand for these bonds. There’s just so much excess liquidity across the globe.”
South Africa’s $2 billion bond maturing in March 2020, yielded 3.69% recently (on 11 October), 138 basis points lower than when the securities were sold in June, according to data compiled by Bloomberg. The yield on Ghana’s 8.5% dollar-denominated bonds, due October 2017, has fallen 239 basis points to 5.78% during 2010.
According to the report, David Damiba, managing director in London for Renaissance Asset Managers,says: “It’s a fantastic idea to diversify their sources of funding. It’s important that these countries would want a benchmark bond” so that other assets can be priced appropriately by investors.
Another proponent is Stuart Culverhouse, chief economist of London-based Exotix Ltd., which advises clients on investments in illiquid markets. “Africa is relatively new to investors. After the last 20 to 30 years of really bad news, the past 5 to 6 years have been generally positive. There’s a cash pile just waiting to be invested. African Eurobonds will definitely be well-received.”
Some economic fundamentals have improved in Ghana, Zambia, Nigeria, Tanzania and Uganda. Most of their foreign debt, totaling about $33 billion, was canceled by lenders such as the International Monetary Fund and the U.S. starting in 2000.
Nigeria’s sovereign debt was 15% of gross domestic product in 2009, according to data from the IMF. That compares with 115% in Greece, 77% in Portugal and 116% in Italy. The report cites the IMF’s April 2010 Regional Economic Outlook for Sub-Saharan Africa. as saying in 2009 government debt was 26% of GDP in Zambia, 37% in Tanzania and 60% in Ghana.
Eurobond sellers will have to rein in fiscal deficits and limit any shortfall in their current accounts, to show that they can repay the money.
“It puts the countries on their toes,” said Kofi Wampah, first deputy governor of the central bank of Ghana, which is considering selling its second security in international markets, speaking to Bloomberg in an interview from his office in Accra on 7 Oct: “You have to ensure that your fundamentals are always right.”