The Deals of the Year winners from Africa.

Bonds: Corporates 

WINNER: Transnet R5bn bond

Bookrunner: Deutsche Bank

HIGHLY COMMENDED: Hospitality Property Fund R270m bond

South Africa’s Transnet is no stranger to the bond markets. The state-owned freight transportation company has regularly issued debt at home and sold its first international deal in 2011, a $750m five-year note. 

But it opted to try something different in November 2013 by selling the first ever rand bond on the international markets. The result was impressive. Transnet, taking advantage of a recent upgrade in its credit rating from BB+ to BBB by Fitch, raised R5bn ($492m) of 7.5-year paper that was listed on the London Stock Exchange. Led by Deutsche Bank, the deal was priced with a 9.5% coupon.

The innovative structure allowed Transnet to save significantly on interest payments. Deutsche believed that the all-in rand cost of a dollar-denominated issue (Transnet would have had to swap such a deal back into the South African currency) would have cost it about 250 basis points more.

Transnet completed its annual funding requirement of R15.6bn with the deal. It also got to diversify its investor base. More than 60% of the buyers of the bond, which traded strongly in the secondary market, came from outside South Africa. Some 40% of them were from the US.

That Transnet completed the transaction, which did not have a government guarantee, so smoothly testified to its good reputation among international investors. It was sold at a time when many were fretting about the effect of an unwinding of the US central bank’s quantitative easing programme on emerging markets. But there was still plenty of demand for Transnet’s debt.

The company put the proceeds towards its R308bn investment programme, aimed at improving South Africa’s railways and ports.

The judges commended an April 2013 bond of R270m for Hospitality Property Fund, a listed owner of hotels. The deal, led by Rand Merchant Bank, was the company’s first bond and was used to buy the Radisson Blu Gautrain Hotel in Johannesburg.

Bonds: SSAs

WINNER: Winner: Afreximbank $500m 3.875% bond

Bookrunners: Bank of Tokyo-Mitsubishi UFJ, Commerzbank, HSBC, Standard Bank

HIGHLY COMMENDED: Gabon $1.5bn bond

In May 2013, African Export-Import Bank came to the market with its sole Eurobond of the year. Markets conditions were scarcely calm, owing to the volatility that had resulted from comments shortly before by Ben Bernanke, chairman of the Federal Reserve, in which he said that he and his colleagues were thinking of starting to unwind the US’s huge quantitative easing programme. Such a prospect was causing investors to fret about emerging market assets, which had benefitted from huge inflows thanks to loose monetary policy in the developed world. 

But Afreximbank, rated Baa2 by Moody’s and BBB- by Standard & Poor’s and Fitch, managed to get a good result. It entered the market on May 28, a day on which five-year mid-swaps, the benchmark for the bond to be priced above, widened by 12 basis points, a significant amount. This made the job of bookrunners Bank of Tokyo-Mitsubishi UFJ, Commerzbank, HSBC and Standard Bank a lot tougher. Yet they priced the $500m five-year transaction with a coupon of 3.875%, the lowest ever for a sub-Saharan African Eurobond issuer outside of South Africa.

About 135 investors brought into the deal, which garnered a hefty orderbook of more than $1.15bn. Most of the orders by volume – 35% – were from Switzerland.

The proceeds helped Afrexim meet its goal of growing and diversifying its trade finance lending across Africa.

The judges commended a $1.5bn Eurobond sold by Gabon last December as part of an exchange and buyback of existing debt. The transaction, led by Citi, Deutsche Bank and Standard Chartered, was only the sovereign’s second foray into the Eurobond market.

Equities 

WINNER: Palm Hills Developments’ E£600m rights issue

Lead manager: EFG Hermes

Since Egyptian president Hosni Mubarak was overthrown during one of the seminal events of the Arab Spring in February 2011, the country’s financial markets have scarcely been an easy place in which to do business. 

The Egyptian stock exchange has performed well given the political unrest of the past three years. In 2013, its main index rose about 15% in local currency terms and 7% in dollar terms.

Nonetheless, it would take a brave company to attempt to raise equity in December 2013. But that is exactly what Palm Hills Developments (PHD), a real estate firm founded in 2005 and listed in London as well as Cairo, did.

It approached investment bank EFG Hermes earlier in the year. Given its strained balance sheet and growing financing gap, it was vital that it raised capital. EFG Hermes proposed that the issue be in the form of tradable rights, which would be a first for Egypt. The thinking was that these would enhance liquidity in the company’s stock while stopping existing shareholders from being diluted.

After this, PHD set about organising a restructuring plan that included hiring new managers and cutting costs. When it was ready, it met investors in London to present its case to them.

The deal was a success. PHD set out to raise E£600m ($86m) by offering 300 million shares. Done in two stages, the first saw 287 million shares sold. The final 13 million shares were bought shortly afterwards in a second round that was 32 times oversubscribed.

The rights issue was the first in Egypt since Mr Mubarak’s ousting and went a long way to boosting investors’ confidence in the country’s markets as the start of 2014 beckoned.

FIG capital raising 

WINNER: First Bank of Nigeria $300m subordinated bond

Bookrunners: Citi, Goldman Sachs

HIGHLY COMMENDED: Nedbank R3bn Tier 2 bond

Global investors do not often get the chance to gain exposure to subordinated debt from Africa. The continent’s sovereigns are increasingly tapping the Eurobond market, but corporate and financial institution group (FIG) issuance is a rarity. And when these borrowers do come to the market, more often than not they sell senior bonds. 

However, Nigeria’s First Bank, which has a balance sheet of about $23bn, making it the biggest lender in sub-Saharan Africa outside of South Africa, gave investors the opportunity to get their hands on junior paper in July last year.

The bank, rated BB- by Standard & Poor’s and B+ by Fitch, was looking to increase its Tier 2 capital, something made all the more important by the rapid growth of its assets in recent years thanks to Nigeria’s fast economic expansion and increasing demand for credit among its private sector companies

First Bank hired Citi and Goldman Sachs to arrange a subordinated bond. After it visited investors in Europe and the US, it announced a seven-year note, callable after five, on July 30. Demand was such that the book soon closed comfortably oversubscribed. In all, about 50 investors placed $465m of orders for the deal, which was only the second ever subordinated bond from sub-Saharan Africa excluding South Africa, and the largest from the continent since 2009.

The transaction, which has an 8.25% coupon until the call date and pays two-year mid-swaps plus 687.5 basis points after that, was bought by a wide variety of investors. Some 34% of the bond went to buyers from Nigeria, while US investors took 30% and UK ones 27%.

Capital markets bankers hope the bond’s success will encourage other banks from Nigeria to follow First Bank’s lead and also issue subordinated dollar debt in the near future.

Infrastructure and project finance 

WINNER: Saur Energie Côte d’Ivoire $200m reserve-based facility

Bookrunner: HSBC

HIGHLY COMMENDED: R2.3bn Jasper Solar Project

The number of infrastructure projects in sub-Saharan Africa is on the rise. The sheer need for infrastructure improvements across the continent has been coupled with an increased appetite among investors to get exposure to what is one of the world’s most buoyant regions economically. 

Energy projects are particularly important. A shortage of power in many countries is seen as one of the main barriers towards developing a manufacturing base. Some governments have the luxury of big gas deposits, and Côte d’Ivoire, the largest economy in French-speaking west Africa, is one of those. And it wants to exploit its offshore fields to generate electricity via gas-fired power plants.

In line with these plans, HSBC was hired as a financial advisor and bookrunner on a $200m six-year secured lending facility last year in favour of Saur Energie Côte d’Ivoire. The transaction, backed by a 12-year offtake agreement with state-owned Compagnie Ivoirienne d’Electricité, was innovative for being the first reserve-based lending facility completed in sub-Saharan Africa for a gas project. It was syndicated to a group of international banks and was oversubscribed.

The project is of significant importance to Côte d’Ivoire because it will provide more than 60% of the gas needed to fire power stations in and around Abidjan, the commercial capital.

The funds from the facility will be used to develop additional gas and oil deposits in Block CI-27, which is located offshore about 70 kilometres south-west of Abidjan.

The deal, which bankers say sets a precedent for similar transactions to be carried out elsewhere in the region, came with guarantees. The risks associated with the state’s obligation to fulfil the offtake agreement are covered up to 95% through a guarantee from MIGA, the insurance arm of the World Bank.

Islamic finance

WINNER: Osun State Government N11.4bn sukuk

Issuing houses: Lotus Capital, Stanbic IBTC, Chapel Hill Denham, FBN Capital, FCMB, Fidelity Securities, Greenwich Trust, Lead Capital, Marina Securities, Oceanic Capital, PanAfrican Capital, Phoenix Global Capital, Redix Capital, Skye Financial Services, Sterling Capital Markets, UniCapital, Union Capital Markets, Zenith Securities

Nigeria’s capital markets have developed rapidly in recent years, with both the equity and fixed-income markets becoming more sophisticated and liquid. But despite having a large Muslim population estimated at about 85 million (half the country’s total population), Nigeria has seen little in the way of Islamic transactions. 

Osun State Government gave a big boost to this potentially huge market in October last year when it issued not just the country’s first sukuk, but also the first major one from anywhere in sub-Saharan Africa.

The south-western inland state, which has a population of just over 4 million and a largely agrarian economy, sought to raise N10bn ($63m). Demand for the seven-year deal, which was priced to yield 14.75%, roughly 165 basis points above the federal government’s seven-year bonds, received plenty of orders. This enabled the arranging banks to increase its size to N11.4bn.

Osun State had tapped the capital markets once before through its N60bn debt programme, issuing a N30bn seven-year conventional bond in December 2012, which also yielded 14.75%. State officials said the sukuk, which was given a rating by local rating agency Agusto & Co and which is listed on the Nigerian Stock Exchange, proved that the country could develop an Islamic finance market. Such funding, they said, could greatly help states with their long-term development plans. Osun State’s sukuk, based on an ijara structure, a common leasing agreement in Islamic finance, was partly used for education projects.

The deal, bought by 42 investors, most of them asset managers, banks and Islamic funds, also sets a template for the Nigerian sovereign itself eventually to sell sukuk, say bankers.

Loans 

WINNER: Aspen Pharmacare $1.985bn acquisition financing

Initial underwriters: Bank of America Merrill Lynch, Standard Bank

HIGHLY COMMENDED: Tanesco TSh408bn loan

Major acquisition finance facilities have been rare in South Africa of late. The country’s subdued economy – policy-makers are struggling to boost the growth rate much above 2% – has meant that mergers and acquisition activity has been muted. 

But not all companies have been sitting on the fence and trying to preserve cash. Some are still looking to expand and have opted to acquire other companies and assets to help them do that. One of the recent firms in South Africa to launch a major acquisition was Johannesburg-listed Aspen Pharmacare, one of the world’s 10 biggest producers of generic drugs.

In June and September 2013 it announced the takeover of several manufacturing plants, product portfolios and intellectual property from Merck of the US and the UK’s GlaxoSmithKline. The acquisitions totalled $2.1bn.

Aspen approached Bank of America Merrill Lynch (BAML) and Standard Bank to arrange an international syndicated loan of about $2bn. This was to be used alongside a R7.33bn ($710m) locally syndicated loan to fund the takeovers as well as refinance the company’s existing debt.

For BAML and Standard Bank, the task was made somewhat complicated by the fact that Aspen had few banking relationships abroad. But they and the company were able to attract plenty of lenders to commit to the loan. During senior syndication, nine of them joined: Bank of Tokyo-Mitsubishi UFJ, Barclays, BNP Paribas, FirstRand, Investec, National Australia Bank, Nedbank, Royal Bank of Scotland and Standard Chartered.

Once syndication was completed, the facility was closed at $1.985bn, equally split between a three-year portion paying 240 basis points over Libor and a five-year piece paying 250 basis points above Libor.

The transaction was the largest acquisition finance loan from South Africa since 2006 and left Aspen with a solid group of international relationship banks that it can turn to in future should it be tempted by further acquisitions.

M&A 

WINNER: €4.2bn acquisition of 53% stake in Maroc Telecom from Vivendi by Etisalat

Advisors to Etisalat: Attijariwafa Bank (Middle East), BNP Paribas

Advisors to Maroc Telecom: Bank of America Merrill Lynch

Advisors to Vivendi: Crédit Agricole Corporate and Investment Bank, Lazard

HIGHLY COMMENDED: RCL Foods R4bn takeover of TSB Sugar

In January 2013, Etisalat, the Abu Dhabi-based telecoms group, sent a letter of interest to French media group Vivendi regarding its 53% stake in Morocco’s Maroc Telecom. 

Given its cross-border nature and involvement of multiple jurisdictions, the deal was scarcely going to be straightforward. Maroc Telecom, the largest firm by market capitalisation in Morocco, is dual listed in Casablanca and Paris, is 30% state-owned and operates across a wide part of French-speaking Africa – in Morocco, Mali, Mauritania, Burkina Faso and Gabon.

Yet Etisalat was determined to reach a deal and use a controlling stake in the target as a launch pad for building its business in Africa. It hired BNP Paribas and the Middle Eastern arm of Moroccan bank Attijariwafa to advise it on the transaction, while Vivendi turned to Crédit Agricole Corporate and Investment Bank and Lazard. Bank of America Merrill Lynch worked with Maroc Telecom.

The companies involved and their advisors managed to reach an agreement in fairly quick time. To do so, they had to liaise with both the Moroccan and French stock market regulators, arrange financing in four currencies (Moroccan dirhams, CFA francs, United Arab Emirates dirhams and euros), and negotiate with the government of Morocco, given its position as the target’s second largest shareholder.

In November, everything came together and Vivendi agreed to sell its holding for €3.9bn plus €300m in 2012 dividends from the Moroccan firm. The landmark transaction was the largest ever acquisition in Morocco. Bankers say it highlights the increasing appetite among investors for exposure to Africa’s fast-growing economies and, in particular, the businesses focused on the ever-expanding middle class.

The judges were also impressed with South African group RCL Foods’ takeover of local counterpart TSB Sugar for R4bn ($392m) in November 2013.

Real estate finance 

WINNER: Orange Farm Mall in Gauteng province, South Africa

Lead bank: Standard Bank

Real estate deals can have far-reaching positive effects on communities and people. The R400m ($38m) Eyethu Orange Farm Mall, located south of Johannesburg in South Africa, is one such example. Construction on the project began in July 2013 and its doors are expected to open this September. The mall forms part of a new town centre with an integrated transport hub and is designed to act as a catalyst for further development in the area. Testifying to its success in that regard, developers recently started construction of a R24bn Savannah City nearby. That will comprise more than 18,000 mixed-income housing units. 

Standard Bank has played a major role in getting the Orange Farm Mall development under way. It was approached in July 2012 by Stretford Land Development, a development vehicle for the Orange Farm community, to provide financing.

The bank liked the proposal, but realised other development partners needed to be brought in to get it off the ground. As such, it helped Stretford to find suitable co-investors.

After being introduced by Standard Bank, Stretford decided to partner with Flanagan & Gerard Investments, a local property group, and Dipula Income Fund, a Johannesburg-listed real estate investment trust. The three partners are each set to own 30% stakes, with the other 10% being held by a community trust.

Standard Bank also had to provide financing to each party independently. This entailed structuring each portion of debt differently so as to meet each investor’s needs.

The 27,000-square-metre development is expected to create more than 2000 jobs during its construction phase and about 3000 once it is fully open.

Restructuring 

WINNER: Polo Park Mall, Enugu State, Nigeria

Arranger: Stanbic IBTC (Standard Bank)

Polo Park Mall in central Enugu, south-eastern Nigeria, opened amid much fanfare in September 2011. The three-storey building, comprising 22,221 square metres of lettable space and 900 parking bays, gave the city’s 600,000 people a modern shopping venue with a cinema, restaurants and two large outlets of South African retailers Shoprite and Game. 

Despite the excitement, the owners – Enugu State government held 20% and Tayo Amusan, a Nigerian businessman, the rest – started experiencing difficulties. Cashflow was constrained due to problems leasing space, rental rates being lower than the initial projections and a six-month delay in completing the project. Moreover, the high debt-to-equity ratio of 70:30 meant that the owners soon struggled to meet payments on the $41.7m eight-year debt facility taken on in 2010 to build the mall.

Stanbic IBTC, the Nigerian subsidiary of South Africa’s Standard Bank, helped the parties come up with a restructuring deal that kept them afloat and significantly reduced their debt burden.

Under the plan, the International Finance Corp (IFC), the World Bank’s private sector investment arm, injected $6m of equity into the project. In return it got a 26.4% stake, with Mr Amusan decreasing his holding to 53.6%. Enugu Stake retained 20%.

The debt facility was reduced to $36.2m using the equity injection, which was also put towards paying fees and outstanding interest payments.

The new all-dollar loan (part of the previous one was denominated in naira) is mostly fixed rate, gives protection against the exchange rate weakening. The bulk of the debt has also been extended to 2019.

In all, the innovative restructuring, while diluting some of the equity sponsors, has left them in a much less precarious position, while also bringing in a solid new partner in the form of the IFC.

Securitisation 

WINNER: Eskom’s Nqaba Finance 1 R597m residential mortgage-backed securities

Arranger: Barclays

Securitisation and mortgage financing is still in its infancy in Africa. In South Africa, which has the continent’s most sophisticated capital markets, the mortgage market is developing. But housing finance is still difficult to come by for most people in the country.  

Some companies try to give their employees mortgages directly, knowing that they would not be able to get their hands on them otherwise. But to do this, it is vital that those companies are able to issue mortgage-backed securities to relieve them from having to fund such initiatives on their own balance sheets.

Eskom, South Africa’s state-owned power company, is one firm that tries to give its workers access to funding for houses. It has tapped the local structured finance market several times as part of this.

In May 2013 it came to the market via Barclays, which was the sole arranger of the six previous issues under its R5bn ($480m) asset-backed note programme since it began in 2006. This time, Eskom was looking to refinance residential mortgage-backed securities (RMBS) maturing soon. It managed to garner plenty of commitments for its new deal. Split into five tranches, the two AAA ones were particularly popular. The three-year AAA piece received R750m of bids, but was kept at R200m and priced at 85 basis points above the Johannesburg interbank agreed rate (Jibar). The five-year AAA portion, sized at R302m, got R821m of bids and was priced at 110 basis points over Jibar.

The other three tranches – rated AA, A+ and A- and all with five-year tenors – were fully subscribed. They were priced at Jibar plus 125 basis points, 135 basis points and 155 basis points, respectively. The total size of the RMBS deal was R597m.

The borrower managed to get what it aimed for – the spreads were the tightest it had managed since pre-crisis 2007 levels – despite nervousness in the South African capital markets at the time thanks to worries about how the US’s unwinding of its quantitative easing programme might effect emerging markets.

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