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The explosion in demand for telecoms services in sub-Saharan Africa is having a knock-on effect on the region’s capital markets. Uganda Telecom, for example, recently set up a USh54 billion ($27.35 million) secured medium-term note programme. It is one of the first local-currency MTN programmes to be listed on the Ugandan Stock Exchange, and the first secured bond issued by a Ugandan company.
Uganda Telecom kicked off its MTN programme with a USh24 billion first tranche, paying 1.65% over the benchmark, which is a 182-day Ugandan treasury bill, for a five year maturity. The Ugandan market does not have a government yield curve, and the longest-dated government paper is the 364-day treasury bill.
“Now we’ve come up with a five-year instrument that will help offer alternatives to link long-dated investors to the capital markets,” says Peter Enti of the Africa fixed income desk of arranger Standard Chartered Bank. “And it will also help in the pricing of debt.”
National Social Security Fund (NSSF) is underwriting the bonds, while KPMG Uganda is acting as auditor.
The first tranche consists of five-year floating rate notes due in 2008. Interest and principal are both payable semi-annually.
The injection of over $12 million-worth of paper into the Ugandan bond market is a pretty spectacular event. The total value of all instruments traded on the Ugandan Stock Exchange in 2002 was around USh1.1 billion, or just under $560,000.
More bonds mean a diversified capital base for local industry, reducing pressure on banks to lend the cash on their own.
The MTN programme is Uganda Telecom’s first entry into the bond markets. Privatized in June 2000, the company is 51% owned by a consortium, UCOM Ltd, comprising Detecon (20%), Telecel International of Switzerland (59.2%), and Egypt’s Orascom (20.8%), with the government of Uganda retaining a 49% stake.
There is, of course, some way to go before Uganda has a fully fledged local currency bond market on a par with those in Europe, Asia or the US. There is little secondary trading of bonds, for example. “This is a buy-to-hold market,” says Enti. “But as more bonds are issued, then we will see trading taking place and people looking at relative values, which is how debt markets ought to function.”
Local-currency issues are a key tool to help emerging-market telcos buy equipment from overseas suppliers. Typically, a currency like the Ugandan shilling will depreciate over time against the dollar or euro. So to pay for its imports without paying the higher interest rates associated with issuing in a foreign currency, a company like Uganda Telecom needs to issue a bond in its local currency to match its revenue streams, then buy dollars via a spot deal to fund capital expenditure.
Uganda’s telecoms regulator, the Ugandan Communications Commission, says that Uganda’s telecoms sector has grown by 800% in the past five years, and predicts that the number of mobile phone subscribers will double in the next four years.
Last year, Citibank arranged a $50 million local-currency deal for Kenya’s Safaricom, which is jointly owned by Vodafone. It isn’t just telcos that will benefit from the growth of local-currency capital markets. Any firm wanting to match its funding costs and currency to its income and expenditure – perhaps an offshore project company looking to finance its investment in a local project, or the local subsidiaries of other foreign businesses – should be pleased. And there could be a ripple effect across the continent.
Geoffrey Wynn, a partner at Denton Wilde Sapte and Standard Chartered’s legal adviser on the Uganda Telecom deal, says: “The product is capable of being taken to all sorts of places in anglophone and francophone Africa.”
