IFR-Loan bankers to cash in on Sub-Saharan Africa growth

(The following story appeared in the Jan. 8 issue of International Financing Review, a Thomson Reuters publication).

By Tommy Wilkes

LONDON, January 8 (Reuters) - Syndicated loan bankers active in Sub-Saharan Africa are hopeful that booming demand for the region's commodity exports and economic growth rates not far below double digits will provide lenders with a busy deal flow in 2011. Chinese eagerness to provide loans backed by exports of metals, oil and agricultural products from the region has combined with a leap in loan demand from corporate credits -- some big enough to tempt involvement from large, international banks.

Syndicated bank lending to the region reached $19 billion in 2010, a 46 percent jump from the $13.1 billion reported in 2009, Thomson Reuters data shows -- and it is widely expected that the arrival of new loan investors will help to push volumes higher this year.

"The main lenders have known the borrowers for some time, but we are finding new investors all the time. Additionally, Chinese banks are actively involved in commodity-backed deals," said a London-based loan banker familiar with lending to the region.

"There is also intra-African money supporting growth -- for example a bank in East Africa lending to a corporate in West Africa."

DOMESTIC ATTRACTION

Deals closed recently include a six-month two-tranche deal for Ghanaian cocoa purchasing business Produce Buying Co, previously owned by experienced borrower Cocobod, and a hugely oversubscribed loan for Zambian maize marketing organisation Food Reserve Agency.

Acting as arranger, Standard Chartered completed both deals at the end of November last year. The $50 million Produce Buying Co deal was joined by four banks and four funds, and Ghana's Cocoa Board holds the payment risk.

Without any significant bond market, and tight restrictions on those wanting to shift cash out of most SSA countries, bank loans are an attractive home for domestic investors to put their money.

"Because of strong economic growth across Africa there is liquidity in domestic systems. With money staying in the system, local investors can put their money in property, the stock market or in the corporate loan market," said the loans banker.

But much of this growth has relied on commodities. Higher prices for commodity exports have helped many of the 34 countries that make up the SSA region to resist the global economic slowdown.

Commodity-related financings accounted for almost 60 percent of all lending to the region in 2010, with oil and gas taking 29 percent, mining 17 percent and agriculture 14 percent, according to Thomson Reuters data.

John MacNamara, global head of structured commodity trade finance at Deutsche Bank, said that oil production across SSA would also bolster project finance lending in the region over the next few years, particularly as several countries look towards pumping their first barrels of oil.

"From Mauritania in the west to Kenya and Uganda in the east -- oil production in these countries is coming on stream now, or will be in the next few years," said MacNamara, arguing that this will support lending.

Oil-related activity included several large and significant loans in 2010. BNP Paribas and Standard Chartered underwrote a $2.5 billion loan for BP Angola backed by its crude oil sales, delivered at a time when parent BP (BP.L) was struggling to boost liquidity as it grappled with the worst oil spill in US history.

Ghana National Petroleum Corporation, meanwhile, launched a $500 million, four-year pre-export loan financing in 2010, which is set for syndication in early 2011 and is backed by oil contracts from the country's Jubilee field -- the country's first commercially viable oil production. BNP Paribas, Natixis, Standard Bank and Standard Chartered joined Deutsche Bank at the senior level on the deal.

Other notable deals included Cocobod's $1.5 billion, one-year receivables-backed pre-export finance term loan, signed in September 2010. The deal was increased from $1.2 billion and tapped into Asian buyer demand -- a sign of China's growing interest in Africa.

Because of the dominance of commodities, project finance is the most common source of loan funding. Pre-export finance has accounted for close to 40 percent of all money raised in the SSA region, ahead of 24 percent for general corporate purposes and 20 percent for capital expenditure, Thomson Reuters data shows. But project financing could be about to support corporate lending requirements in 2011.

MacNamara argues that the market is driven by commodity production in Africa rather than by economic growth, though he believes the former looks set very soon to support the latter.

OBSTACLES REMAIN

However, several stumbling blocks remain before international banks can win a larger chunk of the corporate financing expected this year. While project finance deals tend to be in US dollars, borrowers wanting money for general corporate purposes are increasingly issuing in their local currencies, limiting the ability of banks without a strong presence in local markets to enter the market.

The rising savings rates among the growing middle classes is also boosting local bank inflows -- allowing lenders to increase single-borrower credit lines and lend larger amounts in local currencies. The appreciation of local currencies versus the dollar has also added to the attraction of issuing in domestic currencies, cutting out the currency risk for companies receiving their income in local currencies.

Another hindrance for international banks looking to move into SSA is a shortage of issuers that can borrow in the sort of size that makes acting as an arranger worthwhile.

"The relative scarcity of large borrowers in Africa, of which even fewer borrow regularly, is a barrier to entry for large international banks," said MacNamara.

(Reporting by Tommy Wilkes)