Shedding its past troubled reputation around debt issuance, the sub-Saharan region of Africa in recent years has increasingly become an attractive location for international creditors. Angola has recently approached Goldman Sachs with the intention of working out how to issue bonds, while Ghana is in talks to issue a bond with some form of credit guarantee from the World Bank. Leader of the pack, however, is Côte d’Ivoire. The country’s issuance of a $750m eurobond in July 2014 marked the country’s successful return to international capital markets.
The price yields of the bond are testament to the confidence investors have in Côte d’Ivoire
Following the success of this bond, Côte d’Ivoire started thinking about a second eurobond issuance in late 2014 and formally launched the process in January 2015. The government intended to have a quick and efficient process, building on the success and the experience of the 2014 eurobond. During an exceptionally short preparation phase of less than two months, Côte d’Ivoire’s Government was advised by Cleary Gottlieb and Rothschild and Cie on legal and financial matters respectively. A highly successful four-day road show followed in London, New York and Boston led by BNPP, Citi and Deutsche Bank as bookrunners. The result was the issuance in February 2015 of a long-dated and uniquely structured $1bn eurobond, with three principled payments spread over 13 years. Its warm reception on the international capital market further anchored market access for Côte d’Ivoire.
Setting the pace
Compared to 2014, the world has seen more constrained and volatile macroeconomic conditions this year, ranging from an economic slowdown in East Asia, to a sovereign debt crises in Europe, and uncertainty over US interest rises, however Côte d’Ivoire itself has seen stable, albeit buoyant, domestic growth. As such, three short-term factors were taken into consideration when structuring the eurobond transaction: US dollar appreciation, protracted volatility in commodity prices and a worsening outlook for global economic growth. Yet despite such market conditions, the issuance of the 2015 bond was carried out smoothly.
Since 2011, the country has had been in a solid credit position. The coupon on the bond is testament to the confidence investors have in Côte d’Ivoire, with the eurobond issuance priced at a coupon of 6.375 percent. This represents a record-low coupon for that maturity, and even compared to shorter dated eurobonds issued by peers. For instance, Ethiopia’s inaugural issuance of a 10-year $1bn eurobond in December 2014 priced at a coupon of 6.625 percent. The tenor of the bond is 13 years, in which equal principal payments will be made to creditors in 2026, 2027 and 2028. This particular structure was intended to ease Côte d’Ivoire’s debt maturity profile, avoid a concentration of maturities, and establish a long-term pricing reference for the country. The importance of optimal debt management in discussions with investors was very well received.
At the same time, the confidence international creditors had in Côte d’Ivoire was also demonstrated by the demand for the bond, which was more than four times oversubscribed. This is nearly double the oversubscription of the aforementioned Ethiopian inaugural issuance, which stood at 2.6. In total, 200 investors from around the world, including the UK and US showed interest.
Investor demand from the US itself was even greater than for the 2014 issuance, with an investment representing 62 percent of total subscriptions, while the UK accounted for 25 percent. Other investors include European nations that, excluding the UK, accounted for 11 percent, primarily composed of German, Danish, Dutch and Irish subscribers. Major investors also included Brazil and the United Arab Emirates.
The 2015 eurobond issuance targeted the same investor base as was in July 2014, suggesting that investors are still willing, and in some cases more so, to support Côte d’Ivoire economic development and transition by purchasing its bonds, confident in increasing their exposure to the country.
While the 2014 eurobond was used to finance public spending in education, health and the energy sector, the 2015 eurobond aimed at filling the infrastructure financing gap in Côte d’Ivoire, which is currently undertaking an ambitious reconstruction effort. Following the 2011 post-election crisis, the government of Côte d’Ivoire launched its national development plan, for 2012 to 2015. The plan aims to reduce poverty significantly and to transform Côte d’Ivoire into an emerging economy by 2020, with this partially to be achieved through an increase in public spending to 9.7 percent of GDP and focussing on investment.
The first funded investments focus on infrastructure, education, health and agricultural sectors. In tandem with private investment, public spending from the bond should further support the development of an environment conducive to private sector business, leading to an increase in economic growth and employment. Proceeds of the issuance are now ensuring strong economic prospects for the country, a robust GDP growth and a promising trend in the industrial and services sectors.
This $1bn eurobond issue was also a key stepping stone in a strategy to diversify the country’s funding sources. The dollar debt market was particularly attractive for a number of reasons. First, favourable market conditions made it one of the cheapest sources of non-concessional financing. Looking towards the long term, however, it was recognised that the development of a stable international investor base should be a strategic objective of Côte d’Ivoire. Given the country’s close monitoring of public debt level, the government launches a financing programme only if it can guarantee a stable, low-cost source of financing. Lastly, the government benefits from significant dollar denominated revenue sources, which provide a natural edge against increased foreign currency exposure.
The bond potentially is the begging of a new age of capital markets on the continent. The eurobond issuance sets a precedent for sub-Saharan African countries. First, it represents the largest issuance for Côte d’Ivoire on international capital markets. Further, it paves the way for other eurobond issuances for sub-Saharan African countries in 2015. With a final maturity of 13 years and an average maturity of 12 years, this eurobond has the longest maturity ever issued by a sub-Saharan African non-investment grade country, suggesting neighbouring states could follow in the footsteps of Côte d’Ivoire. In the past, longest maturities had been obtained by Gabon and Ghana’s eurobonds – two issuances that received mixed reactions from markets – with average maturities of 11 and 11.5 years respectively.
Even though Côte d’Ivoire does not expect to return to the international capital markets in the near future (although the country will consider any opportunity which may arise in the coming years), it has set a precedent and example of the possibilities of good finance in Africa. Other nations can look to the smart structure of the bond issued by Côte d’Ivoire, leading the way forward in the region, ensuring the creation of mutual prosperity for all.