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1 September, 2013
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1 September, 2013
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Emerging Markets, World Bank editions, September 2013

The most impressive bank for corporate borrowers, Africa: Barclays

Barclays, and its affiliate Absa in Johannesburg, is one of the strongest names in debt capital markets issuance across the board in Africa, and was very much a candidate for the sovereign awards too, having served as a bookrunner on deals including Zambia, Namibia, Morocco and Ghana.

It takes our corporate award for its dominance of South African debt issuance.

According to data assembled for Emerging Markets  by Dealogic, nine of the 10 largest corporate deals from Africa in the year to the end of August were South African, and Barclays was on six of them.

The biggest was Sasol’s debut in the US markets, a US$1 billion 10-year SEC registered bond. This faced challenges, pricing in the US in the middle of hurricane Sandy, but was more than three times covered with a US$3.4 billion order book from over 200 investors. Sasol is a South African oil and gas company which aims to expand its operations in North America, so dollar funding made sense; it has shale gas assets in Canada and a coal gas to liquid project in the US.

Another was Eskom Holdings, which raised $1 billion in July. The BBB+ rated company paid a coupon of 6.75% for its funds, priced to yield 6.875%. It faced headwinds in issuing: a South African energy company, it had been expecting to raise energy tariffs by 16% a year in order to bring down its leverage, but was then told by the regulator that it could only raise tariffs by 8%. Investors had to be made comfortable with the leverage that will infer for the company.


Earlier that month, Myriad International Holdings, which is the funding vehicle of the South African emerging market internet and pay TV provider Napsters, raised $750 million, again with Barclays as a joint lead. Rated BBB-, the company attracted investors with assets diversified across Africa and also globally, through internet ventures including Tencent in China and in Russia. It also provided an opportunity for investors in South Africa to diversify their holdings beyond natural resources and utilities. It raised a further $250 million shortly afterwards, again with Barclays involved.


Other big deals from South Africa came in rand. In March, SABMiller raised ZAR1 billion of five-year fixed rate bonds, the first rand bond issue from the issuer since 2007. It priced at the tight end of guidance and was more than three times oversubscribed. Barclays also handled Adcorp’s debut in the debt capital markets, raising ZAR500 million, and another debut for PPC, which raised ZAR650 million, extending its liability curve and reducing funding costs. The PPC deal was under the borrower’s DMTN program and priced nine basis points tighter than guidance, with 4.6 times oversubscription.


The one big deal Barclays did not appear on was the $1.25 billion fundraising for AngloGold Ashanti in July, a deal notable for paying 8.5% to get away as it was priced a week after the company was stripped of its investment grade rating. Both Standard & Poor’s and Moody’s had dropped their ratings on the company, which had had a difficult year, writing down its assets and stockpiles by up to US$2.6 billion on the back of a declining gold price, and negotiating with unions over wage increases. The company’s stock had fallen over 50% in the year up to the deal, partly because of the behaviour of South African security services towards striking miners.


But Barclays was on both of AngloGold’s previous deals and would expect to appear on more in future. Barclays was on a $750 million 10-year deal for AngloGold in July 2012, and was also a lead on the issuer’s inaugural international capital markets transaction in 2010. On the 2012 deal, in happier times for the miner, the deal achieved a $4.5 billion order book and a coupon of just 5.125%.


Barclays’ success in primary issuance is built on an integrated capital markets platform for Africa based upon teams in Johannesburg and London across origination, syndicate, research, trading and sales. It is noted for its presence in the secondary markets and for dedicated research coverage. As its relationship with Absa is becoming formalised into a full merger, there is the potential for the debt capability to grow, and perhaps to nurture corporate borrowers from other African nations into the markets.

The most impressive adviser on privatisations, PPP and infrastructure financing, Africa: HSBC


HSBC, a global leader in project finance, has done the most to bring African energy and infrastructure projects closer to completion in the last 18 months. Earlier this year, the bank was mandated on seven live deals in Africa with project volumes in excess of $5 billion.


Three important deals closed in Africa in 2012-13: one apiece in Ghana, Morocco and Cote d’Ivoire.


In Ghana, HSBC was financial advisor to the Abu Dhabi National Energy Company, or Taqa, on the financing for the expansion of the Takoradi independent power project, a gas-fired plant that is being expanded to 330MW. The debt raised was $330 million, provided by a group of 10 multilateral and bilateral development finance institutions.


Some of these sources of fund were unusual: the OPEC Fund for International Development and the Canada Climate Change Program in particular. It was the first African power project financing for many of the lenders. Moreover, it was the first IPP in Ghana under a project finance structure, and will be one of the first large power projects in Africa benefiting from carbon credits under the United Nations Clean Development Mechanism.


In Morocco, HSBC was the financial advisor to ONEE, a state agency, on the development of Tarfaya, a wind farm. This is an important project for Africa: the continent’s largest single wind farm development. A joint venture between International Power and Nareva Renouvelables will build, own and operate the project, which will have a net power capacity of 300MW.


Morocco has big ambitions in renewable energy, calling for 42% of the country’s power generation to come from renewable resources by 2020. This project, on its own, represents 15% of that ambition.


HSBC was also the financial advisor, mandated lead arranger, bookrunner, PRI agent, documentation bank and hedging bank for Project Taurus in Cote d’Ivoire. This involved a six year amoritizing senior secured reserve-based lending facility of up to US$200 million, secured against future payments under a 12 year take-or pay gas sales agreement with the Cote d’Ivoire state owned Companie Ivorienne d’Electricite. The proceeds of the facility will be used to fund approved capital and operating expenditure required to develop additional gas and oil discoveries offshore.


This complex deal was the first reserve based lending facility for a gas project in sub-Saharan Africa, and was successfully oversubscribed following syndication to international banks. This, like the other deals HSBC has handled this year, is of enormous strategic importance to the country itself: it will provide over 60% of the gas required to fire domestic power plants in and around the capital, Abidjan.


Deals still going through at the time of writing show a particular focus on renewables: a further wind farm programme in Morocco, and the Gouda and Sishen projects in South Africa. In infrastructure, the bank is a financial advisor on the Nacala Railway and Port Corridor linking Mozambique and Malawi. This 584 kilometre corridor links Vale’s Moatize coal mine with the export port of Nacala in the northeast of Mozambique; once completed, it will have the capacity to transport 18 Mt/annum. HSBC is also financial advisor on the Moatize IPP itself, representing Vale. Elsewhere, it is involved in mining (financial advisor to Ferrox on South Africa’s Tivani project), and again to Morocco’s ONEE on its Safi IPP.


Africa’s needs for infrastructure are well documented and urgent: last year Donald Kaberuka, president of the Africa Development Bank, called for $360 billion of infrastructure investment in the next 30 years, while other studies have put the figure far higher. The World Bank has said that Africa needs $93 billion a year over a decade, equivalent to 15% of the region’s GDP. It is easier to move between Africa and other parts of the world than it is to move within the continent itself; Nigeria, with 160 million people, has electricity generation capacity of just 4,000 megawatts, less than half of total demand; and there are needs for improvement in roads, bridges, electricity, water supply, refuse removal and sewage almost everywhere.


So it is encouraging to see projects getting done, and project finance will be instrumental in getting new infrastructure under way. Project finance, properly advised upon, can mitigate political risk and take away the deterrents to investment. For the moment, use of the debt and equity markets for infrastructure development is mainly going to be limited to sovereign bonds (Rwanda’s and Nigeria’s most recent bond issues had specific project needs for the funding) and debt issuance by South African corporates in the mining and energy sectors. And until those sources of funding develop, lending structures will be dominant, with HSBC well placed to continue bringing them together into completed deals.


The most impressive innovator in terms of financing for region-specific problems, Africa: M-Pesa


One of the most crucial developments in African banking in the last 10 years has been the mercurial growth of mobile money: banking through the phone.


Mobile Money for the Unbanked’s Global Mobile Money Adoption survey for 2012 made some striking findings. Firstly, that the mobile money industry is growing fast: there were 150 live mobile money services for the unbanked at the time of the survey’s release, 41 of which had been launched in the course of 2012. There were 30 million active users of mobile money services, performing 224.2 million transactions totalling $4.6 billion during the month of June 2012 alone. As of June 2012, there were twice as many mobile money users as Facebook users in sub-Saharan Africa, and 520,000 registered agent outlets.


The survey describes a two-tier landscape for mobile money, with 14 providers who have grown quickly since launch, while others have struggled to get traction. Six now have more than 1 million active subscribers. But in the places where it has worked, it has really worked: there are now more mobile money accounts than bank accounts in Kenya, Madagascar, Tanzania and Uganda. In Kenya, 60% of the national GDP moves through mobile money platforms, more than 30% in Tanzania and 20% in Uganda.


This all started with M-Pesa – M for Mobile, pesa for money, in Swahili – the mobile phone-based money transfer and microfinancing service launched on Safaricom and Vodacom, the largest mobile network operators in Kenya and Tanzania. As Windsor Holden of Juniper Research noted in September: “Safaricom’s M-PESA was so successful in relation to its peers that it was, frankly, almost embarrassing: like Sebastian Vettel in Formula One, or Usain Bolt in the 100 metres sprint, it achieved results far in excess of those in its field.” That’s not quite fair: Airtel, for example, is gaining traction in a number of African markets with its own mobile money service, and Orange Money has launched in Cote d’Ivoire and Senegal. MTN is in Benin, Cote d’Ivoire, Ghana and Nigeria. But M-Pesa does warrant this award for what it has set in motion.


Kenya remains the market where mobile banking has gained the greatest traction: indeed, some claim, wrongly, that it hasn’t worked anywhere else. It’s true that their strongest area of growth has been the east Asian states of Kenya, Tanzania and Uganda, and that West African growth has been tougher. Even here, though, there are areas where traction appears to be growing: The GSMA survey notes that in Cote d’Ivoire, for example, between 2 and 5% of the country’s GDP moves across mobile money platforms.


M-Pesa itself has now launched in five markets through Vodacom in addition to the Kenya launch on Safaricom; it has launched in the DRC, Mozambique, South Africa and Lesotho. Lesotho was the most recent, and the service reached 260,000 users in three months – 13% of the population. That suggests that the scope for mobile banking doesn’t need to start and end in East Africa, but can grow elsewhere too.  By the time of the Lesotho launch, Vodacom had worked out how to get a launch right: get distribution agents on board first, highlight not only cash transactions but buying airtime, and offer a promotion giving 30% more airtime if a customer bought using M-Pesa. After focusing on P2P transfers first, they then set up arrangements so users could pay bills, like electricity and pay TV, shift money, and get 24 hour withdrawals from ATMs. “Word of mouth is incredibly powerful,” said Ian Ferrao, Vodacom Lesotho managing director, after the launch. “Once we reached the tipping point, we’ve had to move fast to keep up.”


In the home market of Kenya the product continues to develop. Safaricom used it to launch a new product, M-Shwari, in November in order to try to develop a culture of savings among Kenyans. More than two million Kenyans were already using the service by the time of Safaricom’s AGM and had deposited more than Ksh20 billion.


Interestingly, M-Pesa has also shown great potential as a means of mobilising charitable giving. Following September’s Westgate Mall siege, more than 100,000 Kenyans contributed more than KHS30 million in 24 hours using the M-Pesa Paybill system.


It’s still not clear if other markets can emulate the success that has been achieved in East Africa, but the signs are that mobile banking could become a pan-African phenomenon, bringing millions who might otherwise have no access to banking services into the financial mainstream.

The most impressive contributor to the development of local capital markets: Standard Bank


Standard Bank is the leader in the development of the local currency debt markets across Africa. South Africa is an area of particular strength, but crucially, it’s not the whole story: Standard Bank has brought issues in numerous currencies all over the continent.


This is important for Africa. Just as Asia has spent a decade building local currency bond markets to insulate its banks and companies from foreign exchange exposure, Africa would benefit by doing the same. Local currency debt markets greatly increase the available sources of capital in African countries, and so provide avenues for the funding of infrastructure, for the growth of companies, and ultimately for individual participation in market wealth.


A one year snapshot of African debt deals upon which Standard Bank has been a lead manager, in the year to March 31, gives an illustration of the bank’s diversity. Certainly, there are big South African rand deals in there: ZAR3.5 billion for SuperDrive Investments, ZAR 1.6 billion for Mercedes Benz South Africa, ZAR1.39 billion for the City of Tshwane Metropolitan Municipality, and a billion apiece for SAB Miller, Liberty Group (twice), JD Group and Netcare.


But there were also several deals in the Mozambique Metical: MZN250 million and MZN300 million (twice) for Petromoc, and MZN 3.2 billion for the Republic of Mozambique. In Botswanan pulas, it raised BWP80 million for Stanbic Bank Botswana, and in Namibian dollars, NAD333 million for Standard Bank Namibia. In Mauritian rupees, it helped raise MUR1 billion for Omnicane, and in Nigerian Naira, NGN11 billion for Stanbic IBTC, NGN80 billion for the Lagos State Government, and NGN30 billion for the Osun State Government. And in Ghanaian cedi, it was a lead manager on three deals for the African Development Bank in February, raising over GHS150 million. Often, the bank conducts pioneering transactions as an issuer itself, as has been the case in Botswana, Namibia and Nigeria.


Alongside all of this it has still helped African borrowers in dollars when those markets are required, such as a US$600 million FRN private placement for the Republic of Tanzania in March 2013, and US$1 billion apiece for Transnet SOC and JD Group in July 2012. A US$150 million remittance backed term loan for Skye Bank suggests versatility too.


Perhaps the most interesting deal was a ZAR4.5 billion dual tranche convertible bond for Impala Platinum (Implats), for which Standard Bank was joint bookrunner and debt sponsor. Each tranche was in a different currency – rand and dollars – making the deal a market first. Despite being a relatively large deal, the book was closed eight times over, with the leads claiming orders from local and international top tier financial institutions. The pricing, with a coupon of 5% in rand and 1% in dollars, was attractive.


On the equity side, Standard Bank has also been involved in many deals that increase the depth and liquidity of the markets – and, again, not just in South Africa. Umeme’s IPO raised UGX171.2 billion (US$67 million) in November 2012, in Uganda’s largest IPO to date, which was also the first ever IPO cross listing on the Ugandan and Nairobi stock exchanges. Umeme is the primary distributor of power in Uganda. The deal involved a host of innovations: an international bookbuild for price setting followed by a fixed price domestic offer; the first IPO in Uganda to be executed using electronic shares only; and involvement of the IFC as a participant. Investors came in from Uganda, Kenya, the UK, US and South Africa, with 1.6 times oversubscription in the domestic tranche.


Back in South Africa, the bank was joint bookrunner and joint underwriter on Lonmin’s US$817 million rights issue in 2012, the largest rights offer out of sub-Saharan Africa all year. There was a 97% takeup of the rights.


The bank also handled an equity placement in Kenyan shillings, raising KES6 billion for UAP Insurance.


Outside of the capital markets, it’s worth noting Standard Bank’s endeavours in foreign exchange. The bank is the first in Africa to offer a single banking platform that supports streamed executable prices for global FX.


All told, Standard Bank or Stanbic Bank (its trading name in some markets) operate in 18 countries on the African continent. It has a great deal of potential to shape capital market development in all of them, perhaps the more so given the financial muscle of China’s ICBC, which holds a 20% stake in the group. It is important work that will have real consequences for corporate growth in Africa, and ultimately, standards of living too.

Chris Wright

Emerging Markets

The most impressive bank for sovereign borrowers, Africa: Citi


The last two years have been good ones for African sovereign borrowers. Investors have shown themselves willing to embrace political risk in exchange for yield. Egypt, Morocco, Nigeria, Zambia, Ghana, Tanzania, Rwanda, Tunisia: all have found a grateful audience.


The bank that has appeared on the most of these deals is Citi. It missed the Egypt deals but was otherwise on most of the transactions that mattered.


One standout was the Kingdom of Morocco, a US$1.5 billion bond in December. This raising of 10 and 30 year dollar debt was considered remarkable in the context of what was happening elsewhere in North Africa at the time, and one of the central challenges for the leads was to ensure that investors understood the distinction between Morocco’s young democracy within a reasonably benevolent Kingdom, and the revolutions taking place elsewhere in the region. It was distinctive for other reasons too: a rare dollar debut for an investment grade sovereign, though it had issued in euros previously; and a debut coming straight out with a 30-year tenor. But despite this – or perhaps because of it, given the investor thirst for diversification and yield – the deal raised a combined order book of $7.9 billion from 475 accounts. Pricing came in from 300 to 275 basis points over treasuries on the 10-year, and the 30-year eventually priced at 290 – lower than the initial guidance for the 10, at a time when its existing 10-year euro paper was at 320 over. Citi was also on Morocco’s next deal, a $750 million capital raising in May.


In April, Citi was a bookrunner on the Republic of Rwanda’s debut, a $400 million 10-year bond. Rated just B by Standard & Poor’s and Fitch, Rwanda had had to wait three years for a moment when markets were right for the country to come to market, but when it did, it raised a $3.5 billion order book – more than half the size of the country’s entire GDP.


Rwanda did not have to pay as much as one might have expected for its funds: 6.875% yield from a 6.625% coupon. These were remarkable numbers in context: Greek 10-year debt traded at 11% at the time, and the coupon was lower than the most recent deal from higher-rated Nigeria. It was so tight, in fact, that it began to fuel fears of a bubble in emerging market debt, with investors paying inappropriately tight spreads relative to risk. Nevertheless, it was an important deal for Rwanda, raising funds for the financing of a hydro power plant, and the completion of a convention centre.


Nigeria came back to the markets in July, with a $1 billion deal again with Citi as joint bookrunner. By this time, attitudes towards frontier credit had changed considerably, following Federal Reserve Governor Ben Bernanke’s comments on tapering in May, but the deal raised $500 million of five-year money at 5.125% with a 5.375% yield, and $500 million of 10-year at 6.375% priced to yield 6.625%. Total books were over $4 billion. The market put the new issue premium at 30 to 60 basis points, but the deal did get done, providing the market with an indication of a clearing price for other deals. The funds will be used to finance a power infrastructure project.


Two weeks later, it was Ghana’s turn, drawing $2 billion of demand for a $750 million 10-year bond. Ghana, like Rwanda, is rated single B, but markets were no longer quite so avaricious for African sovereign bonds, and Ghana paid 8% for its second ever Eurobond, more than one percentage point more than Rwanda had paid for a debut. Nevertheless, bringing deals like this is an achievement in any market: Ghana has a fiscal deficit equivalent to 12% of GDP and rising, and investors had to be made comfortable with that.


Ghana then followed up with a liability management trade, through the same leads. This was an exchange offer to roll holders of the country’s 2017 bonds into its 2023s. Doing so allowed them to move $250 million into the bond they had raised the previous week, extending the duration of Ghana’s funding.


It remains to be seen where African sovereign debt issuance goes from here. We are unlikely to see the enthusiasm that Rwanda took advantage of any time soon, at least until the overhang of Federal Reserve tapering is dealt with. But investors do appear to be willing to look at African sovereigns on a case by case basis, and there is always a price at which deals can be done. Citi is well placed to represent those countries when they feel the time is right.




Chris Wright
Chris Wright
Chris is a journalist specialising in business and financial journalism across Asia, Australia and the Middle East. He is Asia editor for Euromoney magazine and has written for publications including the Financial Times, Institutional Investor, Forbes, Asiamoney, the Australian Financial Review, Discovery Channel Magazine, Qantas: The Australian Way and BRW. He is the author of No More Worlds to Conquer, published by HarperCollins.

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