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Ghana/Kenya: Eurobonds to Decouple as Fiscal Challenges Come to Fore

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Ghana and Kenya, two of the sub-Saharan African sovereigns with the highest amount of outstanding Eurobonds, could see a widening of their risk premiums over 2021, according to a Senior Credit Analyst at Redd Intelligence, Mark Bohlund.

Faced with fiscal challenges, the two African nations are expected to return to the Eurobond market in the first quarter of 2021, but this time with bigger risk premiums as investors are expected to incorporate a higher likelihood of frontier-market issuers being pushed into debt restructuring.

Mark Bohlund said, “Ghana and Kenya are likely to return to the Eurobond market in 1Q21 but see a widening of their risk premiums over 2021 as investors incorporate a higher likelihood of frontier-market issuers being pushed into debt restructuring.”

With Ghana’s outstanding Eurobonds presently estimated at US$10.3 billion and Kenya’s outstanding Eurobonds put at US$6.1 billion, spreads on Ghana’s Eurobonds will increase over those of Kenya in 2021.

It is likely that spreads on Ghana’s eurobonds over those of Kenya will increase over 2021 as concerns rise over its weak fiscal position and high reliance on commercial overseas financing,” Bohlund stated.

Commenting on the countries’ fiscal positions, Bohlund said both countries are likely to post double-digit fiscal deficits this year, as contracting economies add to already faltering government revenue.

“With interest costs absorbing close to 50% of government revenue, Ghana will struggle to find sufficient cost- savings in other areas to reduce the fiscal deficit substantially in 2021.”

“In contrast to Kenya, Ghana has already cut back its capital expenditure to a bare minimum. The Bank of Ghana stepped up its purchases of government bonds sharply in September and we expect this to continue during 2021.

“In Kenya, part of the solution should be to encourage county governments to raise more revenue, but this will be challenging to implement before the August 2022 elections.

“Having shied away from bi- and multilateral creditors in favor of commercial borrowing, Ghana is likely to struggle to secure sufficient external financing in 2021. This makes increased central bank financing likely and poses downside risks to the cedi.

“Neither Ghana nor Kenya is likely to seek DSSI participation in 1H21 even if they deem that international bond issuance will not be possible.

“We have changed our view and now expect both Ghana and Kenya to issue Eurobonds in 1H21.

“Kenya is likely to continue to draw on funding from the IMF, the World Bank and other multilateral creditors, as well as bilateral financial support from China as the Standard Gauge Railway, continues to bleed funds.”

Bohlund added that the spreads between Ghana and Kenya Eurobonds are likely to widen further as a higher risk of a debt restructuring is priced into Ghanaian assets.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

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Lagos Free Zone Company Issues N10.5B Series 1, 20-year Corporate Infrastructure Fixed Rate Bond in Nigerian Capital Market

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Lagos Free Zone-Investors King

Lagos Free Zone Company (LFZC), the first free zone in Nigeria with a fully integrated deep seaport, is pleased to announce the successful issuance of  NGN10.5 billion 20-Year Series 1 Senior Guaranteed Fixed Rate Corporate Infrastructure Bonds Due 2041 LFZ Bonds) under  NGN50 billion Debt Issuance Programme.

LFZC is the infrastructure development subsidiary of Tolaram, the Singaporean conglomerate with more than 45 years of presence in Nigeria and business interests in consumer goods, infrastructure and fintech space. Lagos Free Zone is being developed as the largest integrated port-based economic zone in Nigeria and shall serve as the beacon of industrial development across Nigeria and West Africa.

Enterprises operating in the Lagos Free Zone will benefit from various policy incentives underpinned by the legislative framework applicable for free zones in Nigeria. In line with its vision statement – “to be the preferred industrial hub in West Africa with world-class infrastructure”, the zone is equipped with a host of shared industrial infrastructure necessary for attracting investments from the leading trade partners of Nigeria.

Backed by an irrevocable and unconditional guarantee from InfraCredit, LFZC Series 1 Bond is accorded a ‘AAA’ long term credit rating by Agusto and Co. and GCR, reflecting the highest degree of creditworthiness for these bonds. The Series 1 Bond, a 20-Year Guaranteed Fixed Bond, was oversubscribed by institutional investors including eleven domestic pension funds, two insurance firms, banks and HNIs.

The transaction is the first 20-year non-FGN Bond issue in the Nigerian debt capital market and the first Securities and Exchange Commission-approved Infrastructure Bond for the development of an industrial hub. The Series 1 Bond priced at a modest premium to the comparable FGN Sovereign Bond, provides a unique opportunity for pension fund managers, life insurance firms and other institutional investors to match their long-term liabilities with low-risk, high yield assets.

Speaking on the transaction, the Chief Finance Officer (‘CFO’) of LFZC, Mr. Ashish Khemka stated: “This is a milestone transaction for us at Lagos Free Zone Company and it is a testament to the capacity of the Nigerian debt market as a veritable source of domestic capital for infrastructural development in Nigeria. The response to this bond program further strengthens our commitment to realize our vision and thereby enhance Nigeria’s competitive positioning with our continuous focus on Ease of Doing Business parameters.

LFZ further underscores Nigeria as a compelling industrial hub within the West African coast and ideally orients itself in anticipation of the imminent single market regime under AfCFTA. We are particularly excited by the confidence demonstrated by pension fund managers and other institutional investors at this debut issue and we appreciate the team at InfraCredit, StanbicIBTC Capital and other parties to the transaction for this novel structure, which helps to de-risk the transaction and aligns the interest of different stakeholders”.

According to the CEO of InfraCredit, Chinua Azubike, “It has been exciting working with Lagos Free Zone Company on this landmark transaction. It further demonstrates our commitment towards inclusive access to long term local currency finance for infrastructure development. Interestingly, LFZC has set a new benchmark in the Nigerian domestic debt capital market, as the first 20-Year Corporate Infrastructure Bond in Nigeria, elongating the corporate bond yield curve and reinforcing the prospect for Nigerian Corporates to raise long term finance within the local market.

The LFZC Bonds validates the appetite of domestic pension funds and other institutional investors in financing viable long term infrastructure assets. We would continue to partner with all relevant stakeholders in executing novel strategies towards unlocking domestic capital for infrastructure finance, in addition to creating quality asset classes for diversifying investment portfolios of local institutional investors”.

Also commenting on the transaction, Funso Akere, Chief Executive of Stanbic IBTC Capital Limited, said: “Stanbic IBTC Capital, FBNQuest Merchant Bank and Radix Capital Partners are delighted to have advised LFZC on this landmark 20-year Infrastructure Bond issuance, which evidences the depth and liquidity of the Nigerian debt capital markets and aligns with the pension fund industry’s growing demand for quality long-dated assets. The success of the transaction demonstrates investors’ confidence in the vision and purpose of the Lagos Free Zone and we thank the Board and Management of LFZC for giving the Issuing Houses a free hand to guide the process to successful completion.

Supporting infrastructure development is a key pillar for Stanbic IBTC and we are very pleased to have acted as Lead Issuing House to this landmark infrastructure bond issuance, which is the longest tenor corporate bond issuance in the history of the Nigerian debt capital markets.”

Funso noted that LFZC is focused on delivering essential infrastructure to ease the cost of doing business and facilitate the entry of global industrial brands into Nigeria, which is expected to boost sustainable development, galvanize economic growth and improve the livelihoods of Nigerians, while also deepening the Nigerian debt capital markets through the issuance of innovative debt instruments.

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Investors Oversubscribed for Access Bank US$500 Million Senior Unsecured Eurobond

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Access Bank Plc strong financial position has continued to attract global investors to the bank’s financial instruments despite the ongoing global challenges and limitations.

Investors oversubscribed for the bank’s $500 million Senior Unsecured Eurobond issued under Access Bank’s $1.5 billion Global Medium-Term Note Programme. The lender offering received over three times oversubscribed orderbook of over $1.6 billion, the largest orderbook for a Nigerian bank Eurobond.

According to a statement signed by Sunday Ekwochi, the bank’s secretary and seen by Investors King the fund will help enhance the capacity of the Bank to support its general banking process and provide medium term funding for the lender.

The Senior Eurobond is a 5-year unsecured note (144A/RegS) is listed on London Stock Exchange and it will mature in September 2026 with a yield and coupon rate of 6.12 percent. The interest is payable semi-annually in arrears.

Speaking on the success of the Eurobond, Herbert Wigwe, Group Managing Director, said: “At Access Bank we remain committed to our vision to become the World’s Most Respected African Bank and Africa’s Gateway to the World. The success of our USS500 milion Senior Unsecured Eurobond is yet another stride towards the realisation of that vision and underscores our investors confidence in the Access Bank story. We are pleased with the diversity of the order book and the success of this issuance further strengthens our resolve to deliver on our strategic objectives”.

Absa, Barclays Bank, JP Morgan and Standard Chartered acted as Joint Bookrunners on the transaction; and Chapel Hll Denham and Rand Merchant Bank acted as Financial Advisors and Joint Bookrunners.

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Zambia Bonds Rally After Leader Tweets He’ll Pay Creditors

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Zambian President Hakainde Hichilema took to Twitter on Thursday to assure creditors that they’ll be paid, having warned in an interview with Bloomberg this week that the southern African nation’s debt burden is bigger than previously thought. The country’s bonds rallied.

Hichilema, who defeated Edgar Lungu in last month’s election, needs to negotiate new terms with external lenders after Zambia became Africa’s first pandemic-era defaulter 10 months ago. Using the nickname “Bally” — local slang for dad —  the new president said he would pay.

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