Embed Size (px)
Citation preview
Debt Instruments as an Effective Fund Raising Mechanism
19 September 2006
2
Introduction
This presentation aims to share our experiences originating Capital Markets issues across Africa. We also debate the some of the regulatory challenges to originating Debt Capital Markets issues across Africa
The presentation will cover:1. ABSA-Barclays transaction experience
2. Importance of the Debt Capital Markets
3. Regulatory roles within the Debt Capital Markets
4. Regulatory obstacles to growth of the Debt Capital Markets
5. Overview of sub-Saharan Debt Capital Markets
6. Conclusion
7. Case Study: Botswana Building Society
1. ABSA-Barclays Experience
4
ABSA-Barclays commitment to Africa
ABSA-Barclays has been closely involved with Africa for over 80 years.
Barclays has recently committed over ZAR 33bn for the acquisition of ABSA in South Africa and injected over USD 100m in additional capital into the rest of Africa
ABSA has a long standing history in Mozambique, Angola, Tanzania and Zimbabwe
Together ABSA-Barclays provides Pan-African Banking covering 14 countries
This has positioned ABSA-Barclays as one of the prominent foreign banks in Africa in terms of capitalisation
ABSA-Barclays draws on the support of the Barclays global network and expertise to further its local business
Long term presence
Long term presence
Expanding presence on the African continent
Increasingcommitmentand resources
Increasingcommitmentand resources
BotswanaGhanaKenyaMauritiusMozambiqueNamibiaTanzaniaUgandaZambiaZimbabwe
5
Debt origination in Egypt, Ghana, Mauritius, Kenya, Tanzania, Zambia and Botswana
Debt origination in Egypt, Ghana, Mauritius, Kenya, Tanzania, Zambia and Botswana
BWP 500 millionMedium Term Note
Programme -Issued BWP190 mn
Sole ArrangerDecember 2005
BWP 500 mnMedium Term
Note Programme
Sole Arranger
Barclays Bank Botswana
March 2006
KES 4 billionFloatingRate Note
€25 million
Joint underwriter
Barclays BankKenya
May 2001
KES 1 billion5 year Floating Rate
Note
Lead Manager
Barclays BankKenya
October 2002
KES 4 billion bond Issue
KES 6 billion Syndication
Joint Lead Arranger FX Manager
December 2005
TZH 10 billionFixed Rate Note
Lead Manager and Placing Agent
Barclays Bank Tanzania
February 2004
EGP300mn
Currency Linked Notes
Arranger
February 2006
$ 100 Mn
Mandated Lead
ArrangerSeptember
2004
Kshs10 bn
Currency Linked Notes
Arranger
February 2006
MUR 2 billionMedium Term Note
Programme
Arranger
Barclays Branch PLC, Mauritius Branch
August 2005
ZMK 30 billionFloating Rate Note
Arranger
Barclays Bank Zambia
May 2003
Central Electricity Board
Mauritius
MUR 600 mn
Senior unsecured bonds due 2009
June 2006
Barclays Bank Tanzania
THz 10 bn
Senior unsecured bonds due 2011
February 2006
Athi River mining
Kshs 500 mn
Senior unsecured bonds due 2010
September 2005
ABSA-Barclays African experience
LE 1’000 Mn
Bond Issue
Mandated Lead Arranger & Underwriter
December 2004
2. Importance of Debt Capital Markets
7
Composition of issued bonds, bank debt and equities securities (Developed vs. Emerging Markets)
Size of the four pillars of financing almost equal in developed markets
Efficiency of capital markets correlated to development
Government Securities22%
Coporate Bond Market24%
Stock Market 29%
Bank Credit25%
Government Securities
50%
Coporate Bond Market
1%
Stock Market 14%
Bank Credit35%
Developed market (USA+ Euro+ Japan) Emerging markets
Source: IMF – Global Stability Report April 2006 Source: IMF – Global Stability Report April 2006
8
Composition of issued bonds, bank debt and equities (SA vs. Rest of Africa)
South Africa Rest of Sub-Saharan Africa (estimate)
Government Securities
50%
Coporate Bond Market
5%
Stock Market 10%
Bank Credit35%
Government Securities
11%
Coporate Bond Market
4%
Stock Market 61%
Bank Credit24%
Sub-Saharan Africa is still lagging behind
Capital markets widely dominated by bank funding and government issues
Implications of financing skewed to bank credit?
Source: IMF – Global Stability Report April 2006
9
Drawback of bank funding
In Africa, financial markets have been dominated by commercial banks, which have not been reliable sources of long-term financing
The drawbacks are: Shorter dated tenor: Will not suit the infrastructure funding Africa
needs
Strong covenants
No secondary
Usually more expensive than bond funding
10
Bond finance: Most optimal funds for long term funding Possibility 5-25 years funding possible
Fixed rate funding
Appetite from pension fund and other non-bank financials institutions
Wider variety of investable products for institutional investors
Improved secondary market liquidity
Promoting economic stability
3. Regulatory roles within the debt capital markets
12
Players in the Bond Market
Regulators (Self regulation vs. Legislated)
Issuers InvestorsArrangerArranger
13
Players in the Bond Market
Who are they, what do they do and why?
Key regulators in the industry are Government, CMA or equivalent
body, and the Stock Exchange
Government has overall responsibility to institute macro economic
measures and a strong legal framework that create an enabling
environment
The Capital Markets Authority ensures investor protection through
supervision of the securities industry
Financial misconduct by issuers and intermediaries creates social
loss and lack of market confidence on a level playing field
The Stock Exchange provides a market place for secondary trading
activity and approves the listing of new issues
ISSUERS
INVESTORS
ARRANGERS
REGULATORS
4. Regulatory obstacles to growth of debt capital markets
15
Regulatory constraints
Transaction and listing costs too high
Regulatory environment not harmonised
Regulations lagging products development (i.e. securitisation)
Some regulators lack of autonomy
Withholding taxes are a disincentive
Approval timeframe very long
Settlement systems lagging behind
No differentiation between retail and institutional instruments
16
Kenya
Tanzania
General negatives encountered Regulations less
developed and fewer representation of all stakeholders
Inward focused regulations
Bureaucracy
Skepticism
Overly strict
Not proactive
Expensive
Positives Negatives
Regulatory environment (Not country specific):
Botswana
Uganda
Regulatory framework being updated
Regulators open to foreign investors on long term instruments
Listing costs under review
Governments setting long term benchmarks
Privately placements permitted
Mauritius
Zambia
Ghana
5. Overview of sub-Saharan debt capital markets
18
Progress made but Africa still lags behind
Yield curves in Sub-Saharan counties have lengthened in recent years owing to a shift by government to long term funding
However, short term financing still dominates especially where interest and inflation rates are high
Governments have opened T-bill and Bond markets to international investors
Banks have pioneered capital market issues
Possibility to issue new products
Longer government yield curves
Longer government yield curves
19
Government yield curves
5
10
15
O/N 28days
91 days 182days
273days
364days
1.5 yr 2 yr 2.5 yr 4 yr 5 yr 6 yr 8 yr 10 yr 15 yr 20 yr 30 yr
Botswana
Kenya
Mauritius
Uganda
Tanzania
Zambia
Ghana
South Africa
Government Yield curves
Progress in the last 2 years
Progress in the last 2 years
Yie
ld in
%
Period- Non Linear scale
Source: Barclays Treasury September 2006
20
Size of the institutional market increasing
0
1
2
3
4
Botswana Mauritius Kenya Ghana Tanzania Zambia Uganda
Pension funds, insurance companies and asset managers
USA bn
12bn
Source: Barclays Securities Administration estimates
6. Conclusion
22
Development of African Domestic Debt Markets Greater collaboration between regulators, arrangers and investors
Harmonising the regulations regionally and on a Pan African basis
Commitment to the development of debt markets Political will – more political buy-in – stability, However greater
autonomy of capital market regulators Transparency Recourse to efficient legal regulatory systems Efficiency: Reducing the costs of issuances
Better education effort to issuers and investor Regulations must be more user friendly to encourage issuances
Investment in systems and research Greater research and publication required
Encourage local funding for projects (especially infrastructure) and openness to international investors
7. Case study
Botswana Building Society (“BBS”)
BWP 115 million Fixed Rate Notes due 2016
24
Summary terms
Issuer: Botswana Building Society
Amount: BWP 115 million (US$ 23 million)
Structure: Medium term notes programme
Listing
date:
17 December 2004
Maturity
date:
17 December 2016
Rate Fixed
Yield: 12.0%
Redemption Bullet
Arranger: Barclays
25
Documentation standards similar to South Africa
26
A highly successful corporate bond issue for BBS
Road show and marketing process
Senior management of Botswana Building Society met investors, holding one-on-one meetings
Successful credit marketing highlighted BBS's credit story and turnaround strategy
Investor demand The issue was 15% over subscribed at launch reflecting demand for longer dated assets
Order book The order book spanned 10 institutional investors including, leading pension funds and insurance companies
Success factors Comprehensive credit detail, Interactive investor communication andTiming
Challenges Parastatal legacy and weak historical performance, and lengthy approval process for financial institutions
Achievements Competitive yield and investor diversity
27
Investor presentation was key communication medium
Presentations were made to investors on a one-to-one basis during the road show.
28
Participation in the BBS bond was limited to the wholesale market
Transaction was very well received in the institutional investor market
Quality of accounts was excellent as represented by leading institutional investors
The strong demand from pension funds reflected investor demand for long dated assets
Broad distribution achieved with high % pension funds
Insurance Companies
14%
Fund manages 9%
Pension Funds77%
Investor allocation
29
BSE lists second BBS bondChristmas came early for the Botswana Stock Exchange (BSE) when Botswana Building Society (BBS) listed their second bond on the bourse. The bond is the first tranche of a BWP 500 million Medium Term Note Programme established by the Society in 2004 and has a fixed rate coupon of 12%. BBSS002 as it has been designated, matures on December 15, 2016.
Unlike the undersubscribed BBS001 paper four years ago, this bond was well received by the market and was 15% oversubscribed at launch. Boikanyo Kgosidintsi of Barclays Africa Structured Products – a division of Barclays Bank Plc, said that the Issuer had intended to issue only BWP 100 million of the first tranche, but subsequently issued BWP 115 million to satisfy demand in the market.
Speaking before the opening of trading at the BSE, The Chief Executive Officer of BBS, Pius Molefe said his organization aims to raise BWP 500 million in order to finance growth in the mortgage lending business. He said that the reason they are raising funding through the capital market is because government has since halted lending to parastatals.
“Some of you might be aware that the Society has relied on government for long term funding through the defunct Public Debt Service Fund (PDSF). Since government discontinued lending to parastatals and local authorities, BBS found it necessary to tap into the capital markets” he explained.
Government's shareholding in the Society is 37%. Molefe said the urge to seek funds through capital markets was precipitated by increased demand for credit in the booming property market – both residential and commercial. Currently the Society’s forward mortgage book is estimated at around BWP 86 million.
Mmegi Monitor20 December 2004
He continued by saying that the excitement shown by the market for the new bond is a reflection of the changing attitude of investors towards BBS based on the quality of the new management team.
“ The results of the transformation are beginning to bear fruit as evidenced by the year end financial performance and interim results of the business. This should give confidence to the bondholders that they have made a sound investment, “he vowed.
The BBS001 paper matures next year but Molefe could not immediately confirm when the next tranche of notes would be issued. He said the decision to issue fixed or floating rate paper would be driven by prevailing market conditions at the time of issue.
Market appraisal and press comments
30
BBS issues a second bond:They want to raise money for more mortgages
The Botswana Building Society (BBS) issued a second bond with a face value of BWP 115 million on the Botswana Stock Exchange on Friday.
Chief Executive Officer of BBS, Mr. Pius Molefe , said they want to raise money to finance growth in the mortgage lending business.
Molefe told those present at the listing ceremony that BBS used to rely on the Public Debt Service Fund loans to finance the increase in demand for mortgages. It has now become necessary to explore alternative sources of funding including the capital market to try to meet the overwhelming demand for residential and commercial properties.
Molefe said that” BBS is undergoing transformation to provide services to all sectors of the market as evidenced by the introduction of automated teller machines in their branches. BBS should no longer be viewed as a bank for the elderly,” he said.
Molefe said one of the BBS’s leading products is paid up shares, which offer 11% p.a. tax free payable semi-annually. He encouraged members of the community to invest with BBS.
He thanked Barclays, Collins Newman Attorneys, Capital Securities and Tom Pier Piper and Associates for
the professional advice they rendered to the Society.The Botswana Gazette22 December 2004
BBS earns investor confidence
THANK YOU!
Contacts:
Quinton Zunga: Co-Head Debt Capital Markets – ABSA CAPITAL
Tel: 011 350 9578
Email: [email protected]
