Zambia picks Barclays, Deutsche for debut Eurobond
Reuters reports that Zambia has selected Barclays and Deutsche Bank as book runners for a debut $500 million Eurobond, a government source said on Thursday.
The long-awaited issue is expected to be the first debut by a sub-Saharan sovereign this year and should attract decent investor interest given the southern African nation’s rapid economic growth and political stability.
The IMF projects growth of 7.7 percent this year, driven by rising copper and agricultural production and increased government spending. It forecast inflation to end the year at 6 percent, down from 7.2 percent at the end of 2011.
“We haven’t had a new African sovereign Eurobond this year,” said Tutu Agyare, founder and managing partner of Africa-focused hedge fund Nubuke Investments. “We would definitely be looking to participate.”
Zambia has been mulling a Eurobond for many years but the 2008 global financial crisis and a change in government last year delayed those plans.
Zambia is rated B+ by Fitch and Standard & Poor’s but both agencies have highlighted concerns about the direction of economic policy under long-term opposition leader Michael Sata, who came to power in September.
Analysts said the bond would probably be priced somewhere near Ghana’s $750 million, 10-year, 2007 issue, which is currently yielding 5.95 percent, although Zambia’s proximity to Namibia and South Africa might seem them used as a yardstick.
Namibia’s debut $500 million Eurobond, issued in October, is now priced at 5.18 percent.
Barclays and Deutsche Bank were chosen from a short-list of 11 banks asked for proposals last month. U.S. law firm White & Case will act as legal adviser, the source, who asked not to be named, told Reuters.
A formal announcement is expected later on Thursday.
Jan Dehn, portfolio manager at Ashmore Investment Management, an emerging markets specialist, said Zambia should not try to issue in the current environment given the uncertainty over Greece’s future in the euro zone.
“For new issuers to come to market there has to be a degree of relaxation,” he said. “People have to feel quite bullish and be willing to take exposure to brand new countries. At the moment the risk aversion looks pretty elevated in Europe.”
Rapid GDP growth on the resource-rich continent and improving macroeconomic fundamentals have allowed more and more sub-Saharan African governments to tap international markets.
South Africa, Ghana, Gabon, Senegal, Ivory Coast, Congo Republic, Nigeria and Namibia all have foreign currency bonds