BoT refutes claims USD 600m international bond cheap

Prof Ndulu

Tanzania has swatted international capital market critics, saying its 600million US dollars bond under private placement is not an about-turn to issue a debut Eurobond as these are two separate issuances.

The authorities said on top of that the rate Dar es Salaam got of 600 basic points plus the London Inter Bank Offer Rate (Libor), equivalent 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, meaning that 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.

The Bank of Tanzania (BoT) Governor, Prof Benno Ndulu, told the ‘Sunday News’ that people are ‘lazy’ on researching issues as the borrowing is part of government’s budget in this year 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 yesterday bashing criticisms that “our rates are better than our peers and we are non-rated.”

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. 

According to the international media the placement was described as a “disaster” as the secondary market performance looked terrible.

The bond jumped 2.75 points on their first day of trading - a 66bp compression in spread terms. 

“That works out at a cost to the government of 4.0million US dollars a year in coupon payments, assuming that the bonds could have priced at the tighter level,” part of the International Financing Review (IFR) article that is owned by Thomson Reuters said.

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 waited to be rated under Citigroup consultation in the next days to come.

“How could pain get even worse as the term a just 6 per cent plus Libor, I personal could believe that we get such very good term since we are not rated yet,” Prof Ndulu said. 

The governor said the IMF granted the country to access funds through non-concessional 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 600million 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.

Source: The Daily News, www.dailynews.co.tz, reported by Abduel Elinaza in Dar es Salaam

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