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Africa Credit Markets Brief

Africa Credit Markets Brief

AfDB calls for investment across Africa to close annual US$162bn funding gap – Kenya borrows US$1bn via syndicated loan – Nigeria raises mere NGN100bn in bond sale – Nigeria looking to secure US$5.2bn World Back funding package – Zimbabwe warns South Africa over proposed land reform – Russia’s Rosatom committed to nuclear plant project in South Africa – Senegal issues Eurobond – Saudi Aramco stalls on US$20mn Zambia loan - Zimbabwe secures US$1.7bn loan from Afrexim Bank

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In Brief

Africa

African Development Bank (AfDB) president Akinwumi Adesina has called for more investment to help close a funding gap in Africa that is estimated at roughly US$162bn per year. The AfDB is looking to bolster its "High 5s" initiative, which includes five key development priorities including the development of new infrastructure and deepening of the local capital markets.

African telecoms operators are in for a period of M&A as specialist providers from outside and within the continent look to deliver more mobile services, an M&A adviser has said. “The African TMT vista remains extraordinarily vibrant. Fundamental demand is not in doubt, and neither is exponential growth in demand. This is reflected by telecommunications operators seeking economies of scale. This holds across the mobile sector, the towers sector and the broadband connectivity sector,” said Enda Hardiman, Managing Partner, Hardiman Telecommunications.

 

Botswana

Norilsk Nickel Africa will move forward with a lawsuit against Botswana over a failed US$271mn deal to sell a 50% stake in its Nkomati nickel mine despite the government still looking to raise the necessary funding. The mine sale was concluded late last year after Botswana gave multiple assurances it could afford the stake via BCL Group, the state-backed buyer of the site.

 

Congo (DRC)

Rawbank Sarl, the Democratic Republic of Congo’s biggest lender, plans to extend its branch network into all 26 provinces from 12 over the next three years before expanding regionally and eventually listing its shares. While Rawbank has branches in about 26 towns, it still has no presence in vast parts of Africa’s 2nd largest country.

Kenya

The World Bank has said it will partner with Kenya to research the use of fintech, particularly blockchain technology, when issuing bonds. The technology could have applications within the government's mobile bond platform, which was trialled last month and is expected to expand this summer.

Kenya's Central Bank held US$8.309bn in foreign exchange reserves in May, the Central Bank data showed. Reuters reported that the reserves were enough to cover about five-and-half months’ worth of imports.

Barclays Bank of Kenya, Kenya’s biggest bank by assets, expects the government to remove a cap on commercial interest rates in the second half of this year, as the measures failed to spur lending and instead put revenue under pressure, Bloomberg reported. Lenders are facing a drop in revenue of as much as 25% and are being forced to reduce costs by closing branches and cutting jobs to offset the decline, according to the bank’s CEO Jeremy Awori.

Kenya among other African countries should stay out of the Eurobond market until headwinds ease, says Head of Quantum Global Research Professor Mthuli Ncube. Speaking at the launch of the Africa Investment Index 2016 in Nairobi, Ncube said Kenya should hold off returning to the Eurobond market to refinance existing liabilities until after the elections in August this year, while others should hold off due to foreign exchange risk.

Kenya's Capital Markets Authority said it is currently developing a framework that would allow companies to raise fresh capital by selling bonds that can be subscribed to on a mobile platform. The CMA has previously worked with the Treasury on M-Akiba, a platform that allows retail investors to bid for bond allocations using mobile phones. The Treasury sold KES150mn in a trial of the platform in March, and plans to sell a far more substantial amount in June this year.

Kenya borrowed US$1bn through a syndicated loan from commercial banks, US$200mn more than was expected, Reuters reported. The US$1bn loan was split into a two-year tranche and a three-year tranche. The loan was arranged by Citigroup, Rand Merchant Bank, Standard Bank and Standard Chartered Bank. The East African nation said in March it was raising a total of US$1.55bn in syndicated loans, with US$800mn coming from commercial banks and the rest from development finance banks.

 

Namibia

Namibia has secured a NAD10bn (approx. US$750mn) loan from the African Development Bank to help finance the budget deficit and further infrastructure development in the country. The country's budget deficit is expected to narrow to 3.6% of GDP in the upcoming fiscal year, nearly half of what it was the previous year.

Nigeria

Nigeria has resumed paying into the Excess Crude Account, a fiscal buffer used by the government. Speaking at an event hosted in Lagos this week, the country's Finance Minister Kemi Adeosun said the government paid US$87mn into the ECA last month, the first time it made such a payment since 2015 - when the Buhari administration came to power.

Nigeria's Central Bank plans to offer US$100mn in forwards at an auction to improve liquidity on the currency markets but did not disclose the settlement period, Reuters reported.

Nigeria’s naira has fallen to levels weaker than the black-market rate in a foreign-exchange window set up for international investors and hedge funds last month, as dollar shortages continue to plague Africa’s biggest economy. According to Bloomberg, funds including Chicago-based Frontaura Capital, South Africa’s Allan Gray Ltd. and Duet Asset Management Ltd. of London have bought and sold the currency at levels as much as 6% weaker than where it trades in back-alley shops.

Nigeria is looking to cement a US$5.2bn funding package from the World Bank and the IMF, which will be used to finance the country's power infrastructure deficit. The funding package is said to include a US$1.3bn loan from the IMF for power distribution projects, and a Multilateral Investment Guarantee Agency (MIGA) loan worth US$1.4bn. The Transmission Company of Nigeria (TCN) has already secured about US$1.5bn from donor agencies to finance new power projects in Ogun State and other parts of the country.

Talks between the Nigerian subsidiary of Etisalat and some of its main lenders over a US$1.2bn loan payment default have stalled, according to Reuters. The news agency reported that bankers are looking for a straight equity injection as part of the planned restructuring, but it isn't clear whether Etisalat is willing to move forward with that option.

Nigeria sold fewer bonds at auction than expected as the yields on offer failed to attract foreign investors, Reuters reported. The Debt Management Office (DMO) raised NGN100bn of the NGN140bn it had targeted.  According to Reuters traders said subscriptions were low because yields were priced lower than the inflation rate, noting the debt office had pushed to sell more of its 20-year note.

Zenith Bank says intends to raise US$500mn via medium term note, which will be part of the second tranche of its medium-term programme. In 2014, the Nigerian based lender established US$1bn global medium-term note, raising US$500mn under the first tranche of notes issued.

The launch of Nigeria's debut green bond is still being held up by delays to the release of the 2017 budget. The projects identified for the proceeds of the green bond are all tied to appropriations contained within the bill, which led to significant delays. The Ministry of Environment has not confirmed the official date of the launch, which was originally earmarked for April.

Moody's kept its outlook on the Nigerian banking system stable, and suggested the severe currency shortages were likely to ease as the country's oil and gas revenues stabilise. The rating agency forecast GDP growth at 2.5% in 2017 and 4% in 2018, an improvement on the 1.5% contraction seen last year. It also said capital buffers of the country's largest lenders would likely improve, but non-performing loans are likely to increase marginally.

Nigerian parliament has finally passed the 2017 budget, a long-awaited move that may finally allow the government to go ahead with its reform agenda. The lower and upper parliamentary chambers passed the budget, set at NIN7.44tn (US$24.4bn), on May 11, with both chambers agreeing to a higher volume than the original proposal of NIN7.298tn. The budget assumes an oil price of US$44.5 a barrel, foreign borrowing of NIN175.9bn and domestic borrowing of NIN1.48tn, lawmakers said.

Nigerian workers from an oil labour union have extended a strike to oil majors Chevron, Shell and Eni subsidiary Agip in protest over the sacking of members from Exxon Mobil Corp, the union's general secretary told Reuters. Lumumba Okugbara, of the Petroleum and Natural Gas Senior Staff Association of Nigeria, said union representatives would meet Exxon Mobil management for talks over a strike that began in May.

 

Senegal

BP has announced the discovery of another large gas field off the coast of Senegal with its US partner Kosmos Energy, five months after BP agreed to invest US$1bn in an alliance with Kosmos to develop resources spanning the maritime border of Senegal and Mauritania.

Senegal’s US$1.1bn Eurobond was more than eight times oversubscribed, as investors bet on political stability in the West African nation. The sovereign sold the 16-year notes with a 6.25% coupon after initially offering 6.5%. Investors placed US$9.3bn of orders and the money will be used for infrastructure projects, including a regional commuter train and power supply. Citigroup, JP Morgan, Natixis, Societe Generale and Standard Chartered are managed the deal.

 

South Africa

South Africa may face further downgrades to its credit ratings, which may weaken the currency and lead to higher borrowing costs, the country’s Central Bank said. Having been cut to junk by both S&P Global Ratings and Fitch Rating earlier this year, the sovereign may suffer more of the same as a result of weak economic growth, political developments, liabilities linked to struggling state-owned companies and slow progress in structural reforms

Russia's Rosatom reaffirmed its commitment to participating in a transparent and competitive bidding process for South Africa's planned new nuclear fleet after a court stopped the controversial plans from going ahead. "We are confident in our world class technology, unmatched safety standards and highly competitive solutions," a senior Rosatom official said in a statement, quoted by Reuters.

Transnet's recent failed bond issuance signals continued unease with South African credits, particularly those linked with the government. The state-owned logistics company only managed to raise ZAR55mn out of a planned ZAR600mn bond issuance.

Lawyers for South African President Jacob Zuma are seeking to appeal a High Court order directing him to provide reasons for his decision to fire finance minister Pravin Gordhan in a cabinet reshuffle, eNCA television said. Gordhan's firing led to sovereign debt downgrades, large street protests and calls for Zuma's resignation.

A Zimbabwean cabinet minister has warned South Africa against copying Harare’s disastrous land reform agenda. In the 00s Zimbabwe collapsed into economic chaos after President Robert Mugabe implemented a land reform programme that led to the seizure of white-owned commercial farms and the eviction of 5,000 mostly white farmers and 150,000 black farm labourers. Now Walter Mzembi, Zimbabwe’s minister of tourism, warned its South African counterparts, telling the FT: “Do not carbon copy our revolution, evolve your own model. Land was the bedrock of our struggle. It is a less emotive issue [in South Africa] than in Zimbabwe.”

South Africa's Standard Bank has agreed a US$120mn debt package with the Zimbabwe Power Company (ZPC), which has been grappling with power and liquidity shortages. The funds will be used for the rehabilitation of existing power infrastructure at Kariba South Hydro Power Station and Hwange Thermal Power Station, the bank said in a statement.

South Africa's Finance Minister Malusi Gigaba announced that the treasury would use its ZAR500bn (US$40bn) annual procurement budget to transform the economy and give more support to black-owned businesses. "The strategic use of state procurement is an important lever to grow black business," Gigaba told a business dinner in Johannesburg. "The state getting value for money is important but this aim should be considered in conjunction with our economic history."

 

South Sudan

South Sudan's largest bank is shutting more branches as hyperinflation and a shortage of dollars eat into the group's profits, Reuters reported. The Kenya-based KCB Group Plc, East Africa's biggest bank by assets, will temporarily close five branches, leaving ten operational.

 

Tunisia

Tunisia is working with the Tunisian stock exchange, Bourse de Tunis, and Nasdaq Dubai on its first sukuk issuance, according to a statement issued by Nasdaq Dubai. The potential sukuk will be aimed at both domestic and international investors. Tunisia needs about US$2.85bn in external funding in 2017 and plans to issue a sukuk, or Islamic bond, of US$500mn to cover its budget deficit, the then finance minister Lamia Zribi told Reuters.

 

Zambia

Saudi Aramco, the world’s largest oil company, has stalled the US$20mn loan to Zambia, because there is no guarantee that money will be repaid due unstable political environment, local media reported. Zambia has not yet secured the loan because the guarantee has not been given by the Bank of Zambia and Ministry of Finance.

Zambia's energy regulator approved the removal of key subsidies and a 75% increase in the price of electricity for retail customers, the Energy Regulation Board Chairman confirmed. Earlier this year Zambia's president reversed the sharp increase in electricity tariffs because it would end up hurting the country's poor.

Zambia will conclude a deal with the IMF for as much as US$1.6bn by the end of June, Finance Minister Felix Mutati said. The country has been talking about getting IMF aid since 2014 but an agreement has been delayed by two presidential elections, which made the required reforms politically unappealing.

 

Zimbabwe

Zimbabwe is looking to secure US$2bn in external credit lines from three large multilateral lenders, according to local press reports. The economically troubled country is said to be in talks with the African Development Bank (AfDB), World Bank, and the International Monetary Fund to secure the funding programme. The country already owes the World Bank and the AfDB about US$1.7bn.

Zimbabwe this week secured a US$1.7bn loan from the African Export-Import Bank to help the country clear its arrears with a number of lenders. The country owes about US$1.1bn in interest and penalties along with US$601mn to the African Development Bank.

South Africa's Standard Bank has agreed a US$120mn debt package with the Zimbabwe Power Company (ZPC), which has been grappling with power and liquidity shortages. The funds will be used for the rehabilitation of existing power infrastructure at Kariba South Hydro Power Station and Hwange Thermal Power Station, the bank said in a statement.

 

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