BoT backs government on international bond

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.

The skepticism had it that the private sell of floating rate notes is regarded as ‘a cheap’ and an about-turn on earlier intentions to issue a debut Eurobond for financing road construction. 

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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