Printer Friendly

Investors back African bonds.

Interest in African sovereign debt has been climbing again in recent months. Angola plans to issue a $1bn-$2bn benchmark bond; Kenya, Nigeria and Mauritius have flourishing debt markets and international interest is growing in high-yielding hard-currency bonds such as those issued by the Republic of Congo and CE[sup.3]te d'Ivoire. Tom Minney presents an overview of the African capital markets.

In April, top bond broker Exotix gave a "buy" recommendation on the Republic of Congo ("REPCON") bond which is denominated in US dollars and pays a coupon of 2.5% on its nominal value, redeemable in 2029. In April the bond was trading at 57.0 per 100 of nominal value and the resulting yield of 10.8% was the highest yield for an African sovereign

Trading in $2.4bn of CE[sup.3]te d'Ivoire debt in US dollars under New York law (2.5%, redeemable in 2032) began in mid-April, after the country exchanged it for Brady bonds it had defaulted on nearly a decade ago.

Exotix only rates it a 'hold' at 64.2 in mid-April, when it yielded 9.6%. The bond was expected to make up 0.75% of the $400bn Emerging Market Bond Index (EMBI), according to a recent article in The Banker, and many were expected to buy it for this reason.

Exotix commentary on the bond included detailed assessment of politics and economic developments including current account surpluses and IMF assessments.

Governments in some countries are seeking to create longer-term yield curves for domestic investors in order to provide a framework for longer-term finance and investment.

For instance, Barclays Kenya is offering 20-year mortgages, compared to a few years ago when the limit was five years. Bonds are also being moved into electronic trading and being handled by central depositories.

Better economic management and good investor interest in government debt has paved the way for more corporate bonds"

According to a report on Bloomberg,Angola was awarded credit ratings of B+ by Standard & Poors and Fitch, four levels below investment grade, and Moody's assigned an equivalent ranking of B1, putting Angola on par with Nigeria, Lebanon, Belarus and Ghana. The country plans to issue $1bn-$2bn in bonds this year.

Other high-yield bonds, including in local currencies, can be found in Tanzania, Zambia, Ghana and Kenya. Economic commentators are encouraged, as debt can be a more cost-effective way to fuel longterm economic growth than equity.

Better economic management and good investor interest in government debt has paved the way for more corporate bonds, including for power and telecommunications infrastructure. Kengen (Kenya) and Nampower (Namibia) have both issued bonds to fund urgently needed power expansion and Kenya's telecommunications giant Safaricom has also been successful with a bond issue.

The successes are tribute to the increasing quality of economic and fiscal mangement by African governments.


Nile stock exchange launched in Egypt

The first day of trading on the new Nile Stock Exchange (NILEX), which started business on 3rd June, saw good appetite for the medium and small enterprise shares listed. NILEX is an initiative of the Egyptian Exchange (EGX) to support growing businesses in the Middle East and North Africa region.

The Chairman of EGX, Maged Shawky, said that four companies were traded on the first day for a total trading volume of 1.4 m shares, worth LE10m ($1.8m). Shares were launched for trading at par value and prices registered significant increases in the first trading session.

The biggest value traded was in

El-Barbary Investment Group (BIG), recording LE7m ($1.2m), followed by El Bader Plastic, registering a trading value of LE2.6m.

Trading on the NILEX runs daily from 11am-noon. Brokerage firms operating in the main market can place Bids and Asks. The EGX supervises the trading in NILEX and listed companies must meet the same disclosure rules as companies on the main board. NILEX took four years of research, planning and preparation and approved its first listings mid-2008.

A total of ten companies were listed on NILEX on the first day, covering industry, information technology, retail, mining and the agriculture, chemicals and medical sectors. They are: El Badr Plastic, Masria Card, TN Holdings for Investment, Kato Agriculture Development Co, Utopia Real Estate Investment and Tourism, Ameco Medical Industries, International Company for Fertilisers and Chemicals, Al Oroba Trading Mining and Supplying, AL Moasher for Programming and Information Dissemination and El-Barbary Investment Group (B.I.G).

Dr Mohamed Mustafa Omran, EGX Vice Chairman, had been appointed chairman of the NILEX Advisory Committee in terms of a decree issued by Dr Mahmoud Mohieldin, the Minister of Investment.


Nigeria SE denies trading system is obsolete

The Nigerian Stock Exchange (NSE) management has hit back at claims that its trading system is obsolete and says the Securities and Exchange Commission (SEC) should rather support building confidence in the market. The NSE's Assistant General Manager and Head of Corporate Communications, Sola Oni, on behalf of Director General Professor Ndi Okereke-Onyiuke, said the NSE's NASDAQ OMX trading system is used in 30 countries and one of the best in the world.

This appeared to be a response to remarks apparently made in Nairobi by the Director General of the SEC, Arunma Oteh. Okereke-Onyiuke said the NSE is a dynamic organisation that upgrades its standards according to international best practices. She cautioned that government officials should refrain from making statements capable of affecting the delicate balance in the exchange, saying its gains should be supported through confidence building.

She also confirmed that the SEC had approved the commencement of the new second-tier Alternative Securities Market called ASM/Primpex Market. This will benefit companies who want to be traded, but do not meet the requirements of a full listing. She said: "The ASM is a way of restructuring the second-tier securities market to enable companies takes full advantage of listings; they could migrate to the main market as soon as it is practicable."

Aureos Africa invests $10m in Nigeria

The private equity Aureos Africa Fund, which closed its fundraising in January with $381m, has completed a $10m investment in a leading Nigerian leasing company, C&I Leasing Plc, bringing its investment in Nigeria to $40m.

Jacob Kholi, Managing Partner of Aureos in West Africa, said: "Leasing is a fast-growing part of the financial services sector in Africa and we are delighted to have invested in a market-leading business that has ambitious expansion plans."

C&I was established in 1990 and offers companies both operating and finance leases on various classes of assets. The company is active in other services such as car rental, car distribution and other logistics services. In 2007, C&I acquired a Ghanaian lease provider as part of its regional expansion strategy and is also exploring growth opportunities in the telecommunications, oil and gas, and fastmoving consumer goods (FMCG) sectors.

Davinder Sikand, Regional Managing Partner of Aureos in Africa, adds: "As with many other emerging markets, African economies have grown steadily throughout the global downturn.

Nigeria is the second-largest economy in Africa after South Africa and with GDP increasing at over 5% per annum, Nigeria offers serious opportunities for private equity investment in SMEs with regional growth ambitions."

Botswana completes $72 m bond issue

The Government of Botswana completed its P5bn ($722m) bond issue with an oversubscribed auction by the Central Bank of Botswana. The programme started in 2008 to raise funds for government investment in large development projects under the National Development Plan (NDP 10).

JSE to offer 'dark pool' for very large trades

South Africa's JSE Ltd in late April announced that it was close to creating Africa's first system for trading large securities orders. The structure is known as a 'dark pool' and allows traders to post and transact very large orders or block orders without disrupting the market - for instance, prices and volumes may not be revealed publicly before the trade but only get posted after the event.

The JSE's Head of Equity Market, Leanne Parsons, said the JSE's facility will be called Block X and was the exchange's "response to market demand when trading in large volumes. "Our large users have made it clear to us that while the transparent central order book has numerous advantages, they would also like hidden-order functionality. "This is offered in other markets which offer trading in JSE-listed securities," she said, referring to multilateral trading facilities (MTFs) such as Chi-X, BATS Europe, Nasdaq OMX Europe and Turquoise."

However, for many years banks and brokers have set up their own systems, for instance initially calling each other when clients have large orders or significant stakes in a company so that the market would not start to move share prices up or down in response.

"South Africa could be the centre of mining finance for Africa"

angola stock exchange on course to launch this year

The new stock exchange could see an IPO from Angola's largest company, Sonangol.

Angola's economy comes of age this year with the opening in Luanda of a stock exchange that has "the makings of an African giant", according to an assessment by the pan-African Imara financial services group.

The exchange was on course for an earlier launch but that was thwarted by the economic downturn two years ago. "With the financial crisis now firmly behind us, we anticipate the opening of the Angolan bourse this year," says Imara's Angola chief executive Anthony Lopes Pinto.

First announced in 2006, the stock exchange's backers had hoped for a launch during the first quarter of the 2008 fiscal year, but that was pushed forward to late 2008 or early 2009. Due in large measure to the effects of the credit crunch, the date was extended further to late 2010.

The bourse - the Bolsa de Valores e Derivativos de Angola, or BVDA - has "the potential to become the third largest in sub-Saharan Africa after the South African and Nigerian stock exchanges," observes Lopes Pinto. He added: "Efforts to obtain a sovereign credit rating in order to access international debt markets are well under way, and should reinforce long-term stability and result in a deepening of the market."

Diversification of the economy away from oil is on track while the government has appointed financial services consultants Ernst & Young to eliminate fiscal inefficiencies. Angola is one of the few countries in the southern Africa region without a stock market of its own, even though it has rapidly become the secondbiggest economy among Southern African Development Community (SADC) member states.

AntEnio Cruz Lima, Angolan Industry Ministry's coordinator of the Centre for Capital Markets, says the BVDA will probably be launched in the third trimester of 2010 with 10 listed companies and an initial capitalisation of around $6bn. According to Lopes Pinto, "the broad view considers Angola's estimated GDP of $84.9bn and the capitalisation of African stock exchanges relative to GDP, at an average of 42%".

The mathematics point to the BVDA having a market capitalisation of $36bn, about three times that of Kenya's but still dwarfed by South Africa's JSE, with its 331 listings and total market cap of about $800bn.

"But it would not be too far behind the Nigerian market, with 195 listings and a capitalisation of $39.67bn," observes Lopes Pinto.

Cruz Lima estimates that the Angolan government could collect about $940m in taxes from commercial activity on the stock market activities.

Prices and trades may or may not be revealed after the trade, and some of the trades would bypass a stock exchange entirely. This has led to the development over the years of trading systems on or off the major exchanges.

South Africa could be the centre of mining finance for Africa, according to Mick Davis, CEO of international mining company Xstrata. However, he is reported to have said that restrictions by the JSE and remaining exchange controls made this almost impossible to achieve.

Africa contains some of the world's richest untapped mineral deposits and could be the world's next major copperand cobalt-producing region. Davis said that South Africa should allow free flow of funds in and out and scrap exchange controls completely if it wanted to attract foreign resources companies to the JSE.

Xstrata reportedly operates in 20 countries and is evaluating 20 new projects across the globe. It is listed in London and has 15% of its assets in South Africa.

EAST Kenya aims for 25-year Treasury bond

The Kenya government says it will float the first 25-year bond since the 1960s, as part an initiative to help financial institutions offer long-term debt products such as mortgages and project finance.

Previously Nairobi City Council offered a municipal bond, which was redeemed in the 1980s. Since then, the longest bond floated has been for 20 years.

The first 20-year bond in 2007 was largely ignored but the second one was taken up and even reopened in 2009. Currently 20 years is the longest home loan on offer. Lengthening the maturity of government debt can also be beneficial.

The Governor of the Central Bank of Kenya, Professor Njuguna Ndung'u, said that the bond could be floated in the next fiscal year, starting in July. "The existence of exit options at the secondary market after buying the bond at the primary market should make it more attractive," he said.

Professor Ndung'u added that a vibrant Treasury bond market would encourage corporates to also issue bonds and noted that the yield curve could serve as a much better guide than was previously the case. Another source said corporate bonds could prove more popular than syndicated bank debt, because of pricing.

Bond market coming to Ethiopia,

says PM Ethiopia may soon have corporate bonds, paving the way to a bond market, according to Prime Minister Meles Zenawi.

The Prime Minister said that enterprises such as the Ethiopian Electrical Power Company (EEPCO), the Ethiopian Telecommunications Corporation, Ethiopian Shipping Lines and Ethiopian Petroleum Enterprise are to offer bonds with nominal values of over Birr 100m ($7.4m) and the interest rates could be higher than bank deposit rates.

Prime Minister Meles Zenawi added: "Now inflation is down to a single digit, 8%, the Federal Government is contemplating pushing real interest rates on lending to the positive, pressuring banks to create a competitive market."

The debt market in Ethiopia has long been limited to Treasury Bills and some exchanges between banks. Recently there were only 28-day, 91-day and 182-day Treasury Bills available and the yield is described as minimal, reflecting the lack of investment alternatives.

Rwanda makes $130m from privatisations

The sale of 56 enterprises has made at least Rwf 75bn ($131m) for the government of Rwanda. Minister for Finance and Economic Planning, John Rwangombwa, told members of the Senate in mid-March that initially the plan was to sell 94 of its companies. He said the proceeds of the sales are being used in development projects, including as part of the national budget. The sale of Terracom, currently renamed Rwandatel, made possible investment in fibre optics.

Minister Rwangombwa said that the government had removed some companies from the sale list because it had realised that some were "so bankrupt" that no one would buy them and so they were liquidated, and repossessed others because they posed environmental hazards. He added that government had set up a department in the Rwanda Development Board to monitor and evaluate the performance of privatised companies.

Copyright IC Publications 2008

Provided by an company
COPYRIGHT 2010 Al Bawaba (Middle East) Ltd.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 2010 Gale, Cengage Learning. All rights reserved.

Article Details
Printer friendly Cite/link Email Feedback
Publication:African Banker
Date:Jun 30, 2010
Previous Article:The gruby case of the funny R200.
Next Article:China--Africa fund steps up a gear.

Terms of use | Copyright © 2018 Farlex, Inc. | Feedback | For webmasters