African companies and governments have been looking to Europe and the US for cheaper funds
Regional businesses seeking funding for big projects can now tap into a new lending facility from regional development financier PTA Bank.
The bank raised $150 million through a syndicated loan from European banks. It had initially planned to raise $100 million, but oversubscription by lenders raised the amount. PTA bank intends to channel the money into trade financing, project and infrastructure financing, and general corporate purposes.
Ordinarily, like most development financiers, the bank would finance greenfield projects (projects which lack any constraints imposed by prior networks) that commercial banks generally shy away from, and the loans are usually long-term.
“Our successful loan syndication is a very welcome sign of the growing capacity of global and international banks to embrace the emerging opportunities, and improve credits in Africa’s fast growing economies,” said Admassu Tadesse, the president of the PTA Bank.
Increased foreign investor interest in the region due to the recent discovery of large natural resource deposits — oil in Uganda and Kenya, and gas in Tanzania — worth billions of shillings, is raising the stakes for financing agencies that are seeking to raise funds for key projects.
Two months ago, the African Development Bank announced plans to launch a Pan-African bond to raise $22 billion to finance Africa’s infrastructure development.
The PTA syndication was arranged by Commerzbank Aktiengesellschaft, FirstRand Bank Ltd and Standard Chartered Bank, with 12 banks participating.
Both African companies and governments have been looking to financial markets in Europe and the US for cheaper funds, leaving behind high interest rates in the local market.
Ghana, Gabon, Senegal, Ivory Coast, Congo Brazzaville, Nigeria, Namibia and Zambia have already issued international bonds, with Zambia’s $750 million, 10-year Eurobond attracting bids 15 times the amount on offer.
Namibia’s debut $500 million Eurobond, issued last October, was oversubscribed five and a half times, while Nigeria’s January 2011 offering of the same size was two and a half times oversubscribed.
“Yields on bonds from our region have declined significantly to the point where they are now comparable with yields for several emerging European economies — not to mention some highly indebted high income European countries. There is no doubt that the decade long growth and improved economic governance and management have led to far healthier balance sheets than before, and ultimately unprecedented demand for African credit, both sovereign and corporate,” said Mr Tadesse.
Closer home, Kenya recently obtained a $600 million two-year loan from a syndicate of international commercial banks at an effective interest rate of 6.73 per cent, comprising fees and a mark-up of 4.75 percentage points above the London Interbank Offered Rate (Libor).
The country is planning to issue a sovereign bond worth Ksh50 billion ($600 million), as it seeks to raise money to retire the loan.
Uganda, Rwanda and Tanzania are also planning to turn to the international debt market, on the back of strong economic and credit rating figures. For example, while yields on 10-year Spanish, Italian and Greece bonds stood at 5.64, 4.95 and 18 per cent respectively last week, similar bonds issued by Ghana and Zambia are attracting interest rates of 4.8 and 5.3 per cent respectively.
