Last week was a watershed moment for Zambia, as the country saw the hugely successful issuance of its debut US$750m record-breaking Eurobond on the international market.
Finance minister Alexander Chikwanda was reported as saying this was the start of unfolding development for Zambia, which would be at a rapid pace. The 10-year Eurobond attracted more than 450 investors across the globe, with US investors leading at 56%, followed by Europe-based investors at 40%, 3% from Asia while 1% was made up of investors from other countries.
The minister said the issued bond had surpassed the country’s expectations as it had planned to only issue a bond of $500m as stated in last November’s budget address.
The bond had an exceedingly large order book, with a total subscription of $11.9bn. “This is not only the largest order book for sub-Saharan Africa this year, but also at 5.375% the lowest coupon, meaning the most favourable price. That Zambia is able to garner such huge and unprecedented interest from the international investor community is ample and irrefutable testimony of the confidence the world reposes in Zambia,” said Chikwanda.
The issue was sold at a yield of 5.625%. To put the level of subscription into context, Reuters noted that Namibia’s debut $500m 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. The order book for Ghana’s $750m bond, launched in 2007, was nearly $3bn. Ghana was the first sub-Saharan African country other than South Africa to issue an international bond. Since then, it has been joined by Gabon, Senegal, Ivory Coast, Congo Republic, Nigeria, Namibia and now Zambia.
The purpose of Zambia’s bond issuance was primarily to raise capital to pump into infrastructure development, mainly roads, health, education and in the energy sectors. “All our borrowings will be spent on growth promoting projects and the social sectors of health and education,” said the finance minister, adding that details of funding would show a predominance of outlays to the power sector. In this vein, $186m would be allocated to the government’s equity into the Kafue Gorge Lower hydro-power scheme.
The size of the bond also meant that Zambia would be eligible for the JP Morgan Emerging Markets Bond Issuance Global index, increasing its appeal to major investors, as has been the case more recently with Nigeria, which now forms part of the aforementioned JP Morgan index. There was some concern about Zambia’s economic direction following the election win by Michael Sata, given some of the decisions that were taken, such as the reversal of FirstRand’s acquisition of Finance Bank as well as utterances around the mining sector. However, the oversubscription suggests sentiment towards the country is now more positive, which should lead to increased foreign investment going forward.
Imara is an investment banking and asset management group renowned for its knowledge of African markets.