Zambia’s debut $750-million (U.S.), 10-year euro bond strengthened on its first day of official trading on Friday after becoming sub-Saharan Africa’s most successful bond launch with bids worth more than 15 times the amount on offer.
The yield on the bond from Africa’s top copper producer fell to 5.2 per cent on Friday after it was sold on Thursday at a yield of 5.625 per cent, carrying a coupon of 5.375 per cent. The total order book was $11.9-billion, the finance ministry said on Friday, underscoring investors’ huge appetite for rare, high-yielding African assets.
“This is not only the largest order book for sub-Saharan Africa, but also at 5.375 per cent the lowest coupon, meaning the most favourable price,” Zambian finance minister Alexander Chikwanda said in a statement seen by Reuters.
Around 425 investors took part in the issue, with 56 per cent of them from the U.S., 40 per cent from Europe, 3 per cent from Asia and others accounting for 1 per cent, the finance ministry said.
Fund managers received 85 per cent of the allocations, with the rest being distributed to banks and pension and insurance funds.
Barclays and Deutsche Bank were the lead managers and joint book runners.
Friday’s trade brought the yield closer to that on Ghana’s 2017 euro bond, currently yielding 4.8 per cent, and analysts said it could decline further.
Zambia and Ghana are rated B+ by Fitch. However, Zambia has a B+ rating from Standard and Poor’s, compared to B for the west African gold, cocoa and oil producer.
Proceeds from Zambia’s euro bond, which will be eligible for the JP Morgan EMBI Global Index, will be used to upgrade its infrastructure, particularly in the road and energy sectors.
Though analysts and investors had expected the bond to be oversubscribed, the size of the order book came as a surprise. They said it testified to the strong appetite for scarce African paper and resurgent risk appetite after the European Central Bank announced a bond buying plan last week to aid struggling euro zone members.
“It’s a reflection of the amount of liquidity that’s now available in the advanced economies,” said Yvette Babb, emerging markets analyst at Standard Bank. “The QE programs that have been undertaken in Europe and the U.S. have contributed to a large amount of dollars that are in search of yield.”
She added that Zambia’s low public debt levels, a current account surplus and strong foreign direct investment inflows were also attracting investors.
While Zambia’s dependence on copper, which accounts for about 77 per cent of exports, was a concern, its strong fundamentals could support the bond in the future, she added.
The IMF forecasts GDP growth of 7.7 per cent this year and inflation has fallen to around 6 per cent from more than 30 per cent in 2000.
“There could potentially be some upside in the Zambian bonds,” Babb said.
Stuart Culverhouse, chief economist at Exotix, said many investors had become familiar with Zambia, whose domestic bond market is open to foreigners. “For a lot of people it’s a sound, robust story,” he said.
Namibia’s debut $500-million euro bond, issued last October, was oversubscribed five and a half times, while Nigeria’s January 2011 offering of the same size was two and a half times oversubscribed.
The order book for Ghana’s $750-million bond, launched in 2007, was nearly $3-billion.
Ghana was the first sub-Saharan African country other than South Africa to issue an international bond. Since then, it has been joined by Gabon, Senegal, Ivory Coast, Congo Republic, Nigeria, Namibia and now Zambia.