Africa's first non-sovereign bond of 2021 shows that prospects for Nigeria's economic growth can pull in investors, Ecobank Nigeria managing director Patrick Akinwuntan tells The Africa Report.
The bank last week priced its $300m London-listed bond maturing in February 2026. The issue was more than three times oversubscribed and drew “significant” international interest, says Akinwuntan.
“The strength and depth of the book demonstrated global investors’ strong appetite for the Ecobank franchise in Nigeria.”
The sale shows that appetite for corporate African debt has survived the Zambia sovereign debt default in November 2020.
Ecobank Nigeria is the largest single-country operation of the Ecobank Group, which operates in 33 African countries.
The Africa Continental Free Trade Agreement (AfCFTA), which came into effect at the start of January, gives Ecobank the opportunity to become a Nigerian leader for pan-Africa and global trade and payments, says Akinwuntan.
Bond bounty
The bond will be used to provide “stable medium-term funding for our pan-Africa and international trade transactions,” he says. “Our issuance shows that successful African corporates can raise funds via the international bond market.”
Many African currencies are weak in comparison to Western currencies, so yields need to much be higher to attract international investors, says Akinwuntan.
The yield of 7.125% represents the lowest ever yield achieved by a Nigerian financial institution for a benchmark bond transaction, he adds.
Ecobank chose London for the bond as its gives “access to a wider spread of international investors,” explains Akinwuntan.
Still, debt markets in Africa are “gradually improving, and we believe the capacity to finance debts of this magnitude is available.”
Oil recovery limits bad loans
Ratings agency Fitch has a B- issuer rating on the Ecobank Nigeria bond, and Akinwuntan says this reflects its expectation that “capitalisation will remain resilient,” over the next 12 to 18 months, with the bank “maintaining adequate buffers over the minimum regulatory requirements”.
Fitch says that around 22% of the bank’s oil and gas exposure was impaired at the end of the third quarter.
Still, the agency says that a gradual recovery in oil prices and economic activity will prevent loan losses from increasing substantially this year.
The agency expects Ecobank Nigeria to remain profitable this year.
Nice surprise
Nigeria’s economy surprised on the upside by exiting recession in the fourth quarter. An increase of GDP of 0.1% for the year was a sharp rebound from the contraction of 3.6% in the third quarter.
Akinwuntan is bullish on the broader prospects for African corporate and sovereign bonds. He sees a series of factors that make African debt attractive:
A rapidly growing population and middle classes;
Opportunities for diversification, industrialisation and added-value processing across sectors and countries;
Untapped natural resources and uncultivated agricultural land;
Likely growth in national and regional supply chains as global corporates seek to diversify their sources to reduce risk.
Ecobank Nigeria is also preparing to launch the Ellevate programme, designed for businesses which are led by or focused on women.
The bank’s commercial arm is allocating 10% of its loan portfolio to women’s businesses. The programme will provide loans with favourable interest rates and reduced collateral requirements, says Akinwuntan.
Bottom line
Strong African corporates can raise funds at competitive rates on international markets during the Covid-19 pandemic.