AFC inaugural Eurobond benefits from Nigeria’s post-election relief
Africa Finance Corporation's (AFC) debut bond is buoyed by positive investor sentiment towards sub-Saharan Africa's (SSA) largest economy.
AFC's inaugural Eurobond couldn’t have come at a better time, say bankers who worked on the deal, as the multilateral development finance institution was able to leverage off bullish investor sentiment after the peaceful Nigerian election.
The bond, a five-year, $750 million 144A bond issued on April 29, was listed on the Irish Stock Exchange with a coupon of 4.375% and boasted an order book of $4.7 billion from 315 investors.
Yinka Odeleye, Citi
“The timing was perfect,” says Yinka Odeleye head of corporate finance for Citi in Nigeria. "There was a dearth of supply of new issues from the continent leading up to the announcement of the deal.
"Issuers and investors had remained on the sidelines given political and economic uncertainty in a number of African countries in the first quarter of 2015. This was the environment in which the AFC deal was announced.”
Citi acted as global coordinator for the bond. Mitsubishi UFJ Securities (MUS), Standard Bank and Standard Chartered Bank acted as joint bookrunners.
While the AFC is a pan-African organization, it does have a substantial Nigeria focus: Nigeria accounts for a huge proportion of SSA's GDP and the Central Bank of Nigeria is one of the company’s largest shareholders, with a 42.5% stake. As a result, it relies heavily on what happens in the country.
The AFC bond was issued after the highly contested yet peaceful Nigerian presidential election, which might have given a boost to the bond. The election took place on March 28, and despite a six-week delay, the election was largely peaceful, fair and free, and praised by the international community.
While some onlookers expected post-election clashes, instead the incumbent president Goodluck Jonathan, of the People’s Democratic Party, conceded graciously and congratulated his successor Muhammadu Buhari, of the All Progressives Congress.
After the election, spreads on the three Nigerian bonds outstanding tightened by 87 basis points (2018s), 65bp (2021s) and 51bp (2023s) between March 24 and April 7. The election results were released on March 31, and AFC investor meetings were announced on April 8.
“We advised the AFC to list the debt on the Irish Stock Exchange as we believed that the process would have been completed much quicker than if listed elsewhere,” says Odeleye.
As Jonathan Segal, Dubai-based head of capital markets, MEA at MUS, says, “We opted for a 144A bond because we believed that having US-based investors would give the Eurobond momentum, and provide a good foundation of investors for the AFC bond.”
Odeleye says: “It was a pretty unique bond. The AFC is an investment grade, African issuer with geographic diversification through its presence in 22 African countries. As many investors are unable to allocate funds to non-investment grade credits, they are often underweight Africa.
"The AFC bond offered regional diversification while offering exposure to critical infrastructure and high growth sectors on the African continent. There are very few deals out there that compare to this, and this was evident in the significant over-subscription to the deal by investors.”
Andrew Alli, AFC CEO
The AFC received its first international credit rating in March 2014 from Moody’s, which assigned the AFC an A3 long-term foreign currency debt rating, and that rating remains.
“It was soon after the rating that we started to work on plans for a Eurobond,” says AFC CEO Andrew Alli.
The Eurobond was issued after a week-long roadshow across three continents. Some 45% of the Eurobond was allocated to European-based investors, 32% to the US, 16% to Asia and 7% to the Middle East.
“The AFC does intend to go back to the Eurobond market, but we will also look to issuing other types of debt for the medium-term note programme,” says Alli. "We saw significant interest from Asian and Middle Eastern investors, which we started to garner during a non-deal roadshow we ran in October last year.
"We hope to become a more familiar credit to the region and this will also help us to diversify our funding base.”
He adds: “Although we have not made any concrete plans as yet, we would be interested in sukuk and Islamic finance as we seek to grow connections with investors in the Middle East and Asia.”
The Eurobond is the first issue under the AFC’s $3 billion global medium-term note programme. Proceeds from the Eurobond will go to repay bridging facilities offered to the AFC by MUS, Citi, Deutsche Bank, FirstRand Bank, Standard Bank and Standard Chartered.
Need for infrastructure
Africa’s need for infrastructure is huge. As an indication of the gap, the World Bank has highlighted that the 48 countries in SSA, with a combined population of 800 million, generate roughly the same amount of power as Spain, which has a population of 45 million. According to EY, Africa is in need of $90 billion of infrastructure investment each year over the next decade to fill the continent’s infrastructure deficit.
“While we have far to go, the AFC is doing as much as it can to help fill the infrastructure gap,” says Alli.
The corporation has seen 27% growth in the balance sheet from $1.9 billion in 2013 to $2.4 billion 2014, and has had 31% growth in total comprehensive income from $87.3 million in 2013 to $113.9 million 2014.
“The Kpone independent power plant project, driven by the special purpose vehicle Cenpower, is one that we are particularly proud of,” explains Alli. “This is a $900 million, 350 megawatt power plant in Ghana which when online will provide 10% of the country’s power.”
The project finance comprises two components: a $650 million debt tranche and a $250 million equity tranche. The AFC was the lead project developer, mandated lead arranger, and the single largest equity investor in the project, with a 31.85% stake in Cenpower.