(Reuters) - Bond
issuance volumes from sub-Saharan African have already surpassed
last year's levels with the promise of more to come.
African issuance has dominated CEEMEA supply over the past month,
with at least three more transactions possible over the coming next
couple of weeks.
African and African-related issuers excluding South Africa and the
Maghreb region have already raised US$9.35bn, as of July 25
according to IFR data. That compares with US$8.28bn in 2013.
The increase in issuance out of sub Saharan Africa reflects
investors' search for higher yielding assets as well as portfolio
diversification. And while new or rare sovereign borrowers are
leading the way, Nigerian banks as well as energy companies are
taking advantage. A recent deal from Helios Towers Nigeria shows
that other industries are also becoming more open to bond market
financing.
In July alone, seven issuers with Sub Saharan African interests have
issued bonds raising US$3bn (South Africa and Tunisia have also sold
bonds this month).
And the issuance spree is to set to continue with potential deals
from Ecobank Nigeria, which is eyeing a Tier 2 bond via Deutsche
Bank and Standard Chartered, and Nigerian oil and gas corporate
Seven Energy, which has hired Deutsche Bank, Morgan Stanley and
Standard Chartered as global co-ordinators.
The Nigerian sovereign is also likely to be in the bond market soon
with a unique local currency bond offering that will be sold under a
GDN format and will be Euroclearable.
GROWTH POTENTIAL
But as well as the strong technical backdrop, bankers say investors
are also being swayed by Africa's growth potential.
"They want to know what the money is being issued for. They want to
buy into the African growth story, and the focus for them that the
use of proceeds are viable investments that return high profits in a
quick amount of time. Investors are not just looking at comparables
when looking at Africa now, they are investing in the fundamentals,
and this can prove to be good value for those searching for higher
yielding returns," said Nicholas Samara, vice president, CEEMEA debt
capital markets, Citigroup
It's a view shared by Mahan Namin, portfolio manager at Insparo
Asset Management. "Sub Saharan sovereign borrowers have recently
been able to issue 10-year paper at yields around the 6% level,
which is very good by historical standards, particularly given the
increased pace of issuance out of the region in the last couple of
months. Also, many of the borrowers are no longer debut issuers,
another reflection of how the landscape has changed and why
investors are more comfortable buying."
Senegal returned to the market last Monday to print its second issue
- a US$500m 10 year deal that has a coupon of 6.25%. That compares
with a coupon of 8.75% on its outstanding 2021 notes.
Samara believes that if the deal was issued before the "taper
tantrum", especially in January 2013, Senegal could have achieved
even tighter pricing.
Clearly, there are risks and investors need to be selective. While
the big sovereigns should have no problem pricing, the more
higher-yielding credits in the FIG and corporate sectors need to
pitch their appeal carefully. Nigeria's First City Monument Bank,
for example, shelved a deal earlier this month after failing to get
sufficient investor support at its targeted pricing levels.
NIGERIA LEADS WAY
Still non-sovereign activity is expected to accelerate, particularly
in Nigeria, according to Namin.
"By country, Nigeria is leading the trend of corporate issuance over
the last two months, with successful issuance from the telecoms
sector, oil and gas sector as well as financials issuing Tier 2
debt."
Okan Akin, emerging markets corporates analyst at Alliance
Bernstein, agrees that Nigerian names have been an interesting
emerging market high yield opportunity for investors.
"The country has a strong sovereign balance sheet, with low external
debt levels, current account surplus, provides a positive backdrop.
More importantly, this is also supported by relatively better
secondary market liquidity with strong local investor base, which is
not the case for most other Sub-Saharan African countries."
Seven Energy will be the next Nigerian corporate to test investor
appetite. "It ticks a lot of the boxes, as it has a strong
shareholder support, it's the right sector that investors are
looking at, and it has a credible investment plan. The downside with
this company however is that it is dependent on only one contract so
everything hinges on that."
(Reporting By Laura Benitez; editing by Sudip Roy)
African issuance has dominated CEEMEA supply over the past month,
with at least three more transactions possible over the coming next
couple of weeks.
