Over-subscription of PTA Bank’s international bond is a reflection of foreign investors’ improved perception of risks posed by African enterprises and is likely to pave way for other private and sovereign debt issues, analysts said.
Standard Bank director of investment banking for East Africa John Ngumi said the warm reception of the PTA Bank Eurobond in the global markets is expected to set the tone for sovereign issuers such as the Kenya government, which shelved plans of a Eurobond of similar size in 2007 as a volatile political environment and the onset of the global economic recession put a damper on the bond’s issuance.
“The deal is a milestone that opens up an important source of debt financing for African corporate entities and governments as they seek to diversify funding and accelerate economic development, especially infrastructure,” said Mr Ngumi.
Standard Bank, locally known as CFC Stanbic, was the lead joint book runner for the deal along with Hong Kong based HSBC.
PTA Bank was targeting to raise Sh24 billion ($300 million) from the Eurobond but realised Sh54 billion ($650 million) — more than twice the targeted amount, an indication that international investors are willing to pay a premium for debt and equity issues in African markets which promise higher returns than the less-risky developed economies.
Mr Ngumi said the move marked a new page for African debt issuers, with the Eurobond’s listing paving the way for African corporates and governments to access cheap international debt.
The transaction is the first ever from an East African private corporation and the only corporate Eurobond from Sub-Saharan African in 2010.
Mr Ngumi said the historic transaction also illustrates the growing capacity of African based financial institutions to successfully place complex international financial transactions.
With fears that heavy government borrowing from local debt markets could send the already rising interest rates further upwards, the Kenya government can now ride on a positive country rating to raise cash from international debt markets.
A Eurobond is similar to domestic corporate and government bonds, the key difference being that unlike domestic bonds Eurobonds are issued in the international market and sold to investors worldwide.
Although Eurobonds are listed on several stock exchanges, the London and Luxemburg bourses are the most preferred listing destinations.
Eurobonds are typically denominated in international currencies, and the PTA Bank transaction was denominated in US dollars. The bond was priced to yield 7.125 per cent.
It is the inaugural issue under PTA Bank’s new $ 1billion Euro Medium Term Note (EMTN) whose proceeds will be used to support new trade and project finance lending in Eastern and Southern Africa. According to PTA Bank president Michael Gondwe, the EMTN programme set to diversify the bank’s resource base and raise funding to meet financing requirements of small and medium size enterprises in the Eastern and Southern African region.
“The international bond issue marks an important milestone in the bank’s resource mobilisation programme and is the first step in the implementation of a long term strategy of engagement with international financial markets to access long term capital,” said Dr Gondwe.
He said the bank’s debut Eurobond had set a precedent for other potential issuers in the region, attracting capital flows in support of private sector development in its member states.
PTA Bank is owned by 19 shareholders, 17 are member states from the eastern and southern Africa region.
The shareholders are Kenya, Burundi, the Comoros, Djibouti, Egypt, Eritrea, Ethiopia, Malawi, Mauritius, Rwanda, Seychelles, Somalia, Sudan, Tanzania, Uganda, Zambia, and Zimbabwe. China is a non regional shareholder while the African Development Bank is an institutional shareholder.
Debt market observers say that following the easing of the global financial crisis, international capital lenders are turning to Africa where demand for infrastructure funds is high.
Emerging markets like Africa are targets to lenders seeking to diversify finance sources and earn higher yields.