| Prof Ndulu |
Late last month, Tanzania floated a
seven-year 600 million US dollars international private placement in
England and experts raised eyebrows, but government defended the move
describing it as the best approach for non-rated economy.
International market players are of the view that the
immediate secondary market performance looked terrible after it jumped
2.75 points on the first day of trading - a 66-basic points (bp) or 0.66
per cent compression in spread terms.
“That works out at a cost to the
government of 4.0 million US dollars a year in coupon payments, assuming
that the bonds could have been priced at the tighter level,” the
International Financing Review (IFR) article that is owned by Thomson
Reuters on Reuter website shows.
They argued that for one of the poorest
countries in the world, with GDP-per-capita of 532 US dollars as of
2011, according to the World Bank, that’s a considerable amount of money
to be given to investors.
However, the Bank of Tanzania (BoT) Governor,
Prof Benno Ndulu, swatted critics of international capital markets,
saying the floating was not a U-turn to issuing of a debut Eurobond as
these are two separate issues.
The authorities said on top of that the
rate Dar es Salaam got of 600-basic points plus Libor 0.46 per cent
tallying to 6.46 per cent per year was the best compared to other
Africa’s Eurobonds term of between 7 to 8 per cent.
A 100bp equals 1 per cent. But, critics
said, the bond, which has a five-year average life, was priced at 600bp
over Libor, means Tanzania ended up paying up to 200bp more than it
might have done had it issued a liquid fixed-rate five-year bullet
transaction based on where peers like Zambia and Ghana are trading.
Prof Ndulu said that people are ‘lazy’
on researching issues as the private placing is in this year’s
government budget under non-concessional agreement for road
construction.
“I don’t know what comparison they (critics) are using to
gauge our interest rates that are expensive,” Prof Ndulu said, bashing
criticisms that “our rates are better than our peers and we are
non-rated.”
On February 26, the country entered in
the international capital market placing 600 million US dollar
seven-year private placement (real life only five years) that was
arranged by Standard (Stanbic) Bank, which was tasked by the government
to raise the fund.
IFR said: “The deal, which was led by Standard Bank,
perplexed the financial community from the moment news emerged about it
nearly two weeks ago, especially as Tanzania has an unofficial mandate
with Citigroup for a public Eurobond.”
But the BoT Governor said this is a
separate issue as the intention to raise the fund through Eurobond is
still there and the country is waiting to be rated under Citigroup
consultancy in the next few days.
“How could a pain get even worse as
the term of just 6 per cent plus 0.46 per cent Libor, I personal could
not believe that we got such very good term since we are not rated yet,”
Prof Ndulu said.
The Governor said the IMF granted the
country permission to access fund through nonconcessional loans for
three years and this is the third trench. The first was for electricity
generation and the second for financing road construction.
Eventually,
the deal raised 600 million US dollars, the maximum amount Tanzania was
allowed to borrow in the international market under its IMF programme,
at a final price of Libor plus 600bp.
BoT maintains that the term the country
got on private placement was better than of the Eurobond for Angola,
Ghana, Nigeria, Seychelles and Senegal which were between 7 and 8 per
cent. Angola’s 7 per cent 2019 bond, rated Ba3 from Moody’s and BB- from
Standard & Poor’s, Ghana, which is rated B/B+, its 8.50 per cent
2017 Eurobond.
On other hand Zambia’s Eurobond priced
at 5.375 per cent for 2022 bond. But one investor quoted by Reuters
maintained that they “still see a lot of upside,” an investor who
reckoned the notes could quickly rally to a cash price of 107.
The
critics urged that although that deal remains a long way off as Tanzania
does not have a credit rating, market participants were surprised the
country was going ahead with a private placement as its debut on
international bond.
“To consider a private placement when
they were talking about a Eurobond is not great investor relations,”
said an analyst who covers the region. A syndicate official at the
Standard Bank who worked on the trade said, however, that the private
placement was a sensible alternative to a fully fledged Eurobond - given
the absence of a rating.
“They wanted the financing now for use
in infrastructure projects. In order to achieve their aim of raising a
large sum with intermediate tenor, this was the most effective and
cost-efficient method,” the unidentified official, was quoted by IFR,
saying.
Source: The Daily News, www.dailynews.co.tz, reported by Abduel Elinaza in Dar es Salaam
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