Africa comes to the fore

Tue Jul 23, 2013 11:48am EDT

* Ghana and AngloGold poised for new deals

* Eskom and FBN hold roadshows

* South Africa and Diamond Bank also in pipeline

By Sudip Roy

LONDON, July 23 (IFR) - Africa will be the focus of attention in the CEEMEA debt capital markets this week, with Ghana and AngloGold Ashanti expected to issue new deals, while South African electricity company Eskom and First Bank of Nigeria hold investor meetings.

Ghana will finish its roadshow on Wednesday, and if market conditions are supportive, could issue its first international bond in six years thereafter.

The sovereign, which is rated B by S&P and B+ by Fitch, is understood to be seeking to raise about USD1bn. The tenor of the deal has still to be decided, with a one-tranche seven-year bond or two tranches of five- and 10-year notes among the permutations under consideration.

Part of the proceeds will be used to fund a liability management exercise for Ghana's outstanding USD750m 8.5% 2017 note, which is trading at a yield of 5.65%. Reports suggest Ghana could buy back about USD250m of the bond as part of its debt management.

In a still low-interest rate environment, one banker told IFR it made sense for Ghana to cut the size of the bond well ahead of its maturity date.

In addition, the buyback should provide momentum for the new issue as some bondholders roll out of the old note into the new one.

The other African issuer that could be in the market this week is AngloGold Ashanti. The South African miner is finishing investor meetings in London, having visited accounts in the US last week.

The issuer's roadshow announcement took some in the market by surprise, however, given it has suffered downgrades recently by Moody's and S&P.

The latter's move was especially damaging for the company, taking it out of investment-grade territory. Given that its bonds are SEC-registered too, historically the company has been able to tap into a deep pool of US investment-grade accounts whenever it has issued.

But the S&P move has complicated matters, with some investors now having to consider buying the credit through their high-yield funds.

Like many South African mining companies, AngloGold has suffered from rising costs and falling commodity prices. One of the main reasons behind the S&P downgrade, for instance, was that with gold prices lower than it had previously assumed, the ratings agency was worried that AngloGold would generate more negative free cash flow and would incur a more pronounced rise in debt.

A banker close to the deal, which is likely to raise USD750m-USD1bn, said that despite the ratings action, the company remained one of the foremost gold miners in the world. Moreover, he added, the credit would be a good way to hedge inflationary risks if the US economy continued to show signs of growth.

INVESTOR MEETINGS

While Ghana and AngloGold will keep the primary wheels turning, Eskom and First Bank of Nigeria will undertake marketing exercises ahead of their potential new deals.

Eskom last issued in the dollar market in 2011 with a USD1.75bn 10-year note. Like the country's mining companies, Eskom has experienced labour disputes, which are disrupting its business. It recently announced a further delay in the commissioning of its Medupi coal fired power station.

As a Bank of America Merrill Lynch note says, the delay could be damaging for the country's growth prospects, as South Africa "has to go through another winter in 2014 before new electricity supply comes on line at a time when the reserve margin is already worrying low."

Still, despite these issues, and the broader problems facing South Africa, Eskom's new deal should go smoothly, as should AngloGold's. Even despite the recent transactions from Nigeria and Naspers, African paper remains scarce, though investors will want a premium.

The Eskom deal, in particular, should also provide a guide for the sovereign, which itself is waiting in the wings, having mandated banks in June.

First Bank of Nigeria, meanwhile, is eyeing a potential Tier 2 transaction. It's debatable, however, whether the market is supportive enough for such a risky deal just yet. First Bank is rated BB- by S&P and B+ by Fitch at senior level and the sub notes are expected to be rated two notches lower.

Fellow Nigerian lender Diamond Bank held investor meetings about a similar type of deal in early June, but has so far decided not to follow through with a transaction because of tricky issuance conditions.

Russian Standard Bank proved two weeks ago that subordinated debt offerings from non-investment grade private lenders are not impossible in this market, but that deal benefited from strong local support and attractive pricing. Russian Standard Bank had also tried to issue just before the market sank in late May as Treasury yields shot up, so the leads had the advantage of knowing which investors were keen and kept them engaged even when the market was shut.

Whether a Nigerian bank can garner the same support remains to be seen, though Citigroup, which is a co-arranger on the First Bank deal with Goldman Sachs, was also involved in the Nigerian sovereign transaction earlier this month and the senior offering from Fidelity Bank in May - the latter in particular saw healthy domestic interest.

Still, with Kenya and Senegal also seeking to hire banks for potential deals, and transactions for Tanzania, Rwanda and Morocco in the first half, 2013 could turn out to be a stellar year for African issuers.

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