For the first time in East Africa, a firm — PTA Bank — has raised $300 million from the international markets through a bond issue, in a move that is expected to trigger similar activity in the region.
It comes after past attempts by the Kenya and Tanzania governments to raise funds for development of infrastructure by issuing the instrument were put off due to the global financial crisis. It could herald a revolution in the debt market among governments and firms in Africa.
The five-year bond was issued in partnership with CfC Stanbic Bank’s parent company, Standard Bank, who were the arrangers, alongside Hong Kong-based HSBC.
The arrangers structured and distributed the landmark transaction to European and Asian investors that saw the Eurobond being oversubscribed by over 100 per cent from a target of $300 million to a subscription of $605 million.
The development breaks a jinx in Eurobond issues that has haunted sub-Saharan Africa since 2007.
Though similar to domestic corporate and government bonds, Eurobonds are issued in the international market and sold to investors worldwide. Eurobonds are typically denominated in international currencies.
In the case of PTA Bank, the transaction was denominated in dollars and is listed in the Luxembourg Stock Exchange. Luxembourg and the London Stock Exchange, are the two most preferred listing destinations.
PTA Bank says that it is keen on issuing even more Eurobonds in the future. According to the bank’s president, Michael Gondwe, this is only but the first step in the implementation of a long term resource mobilisation strategy through engagement with international financial markets to access long term capital.
The bank intends to issue bonds in tranches over the coming years under its $1 billion Euro Medium Term Note (EMTN) programme.
Dr Gondwe explains that the rationale for establishing the programme, of which the recent issue was part, was to diversify the bank’s resource base and raise funds to meet financing requirements of a growing pipeline of small and medium size enterprises in the eastern and southern Africa region.
“In addition to setting a precedent for other potential issuers in our region, the bond also reaffirms the bank’s developmental mandate of attracting capital flows in support of private sector development in its member states,” Dr Gondwe said.
So far, PTA Bank has invested $200 million in Kenyan firms such as Family Bank, Uchumi Supermarkets, K-Rep Bank, and Athi River Mining in Kenya in addition to $24 million in Rwanda’s national carrier, Rwandair.
The director of investment banking for Africa at Standard Bank, John Ngumi, said the deal opens up an important source of debt financing for African firms and governments as they seek to diversify funding and accelerate economic development, especially infrastructure.
“Development and trade finance has huge impact on the real economy and hence is a significant enabler of economic growth,” concurs Andrew Dell of HSBC.
Besides, analysts argue that the successful issue of the Eurobond is a vote of confidence in the ability of African institutions to arrange such transactions.
“This historic transaction illustrates the growing capacity of African based financial institutions to originate, structure, and successfully place complex international financial transactions,” Mr Ngumi said.
Among factors that played out to the successful placement of the landmark transaction, Mr Ngumi said, was Standard Bank’s strong Eurobond distribution platform in London, and the ability, working jointly with HSBC, to mobilise expertise from Kenya.
The deal was marked by a series of investor meetings in Zurich, Geneva, London, Hong Kong and Singapore.
CfC Stanbic Bank, a subsidiary of Standard Bank, is regarded as a regional leader in domestic capital debt markets issues, with a portfolio of over $2 billion in debt issues across East Africa since 2004.
These deals were arranged by a team of professionals based in Nairobi, with access to expertise in London, New York and Johannesburg.
Second time lucky
After a successful Constitution referendum vote in Kenya in August, Kenya indicated it was considering floating a Eurobond.
This was not the first time Kenya had made its intention to float international bonds known. The first issuance worth $500 million, according to a December 2007 advertisement placed in The Economist, was slated for the first quarter of 2008.
However, it was postponed due to the political tension in the country, where after the economic landscape became hostile following the global financial crisis.