With African economies enjoying a period of stability and growth, Standard Bank has found its DCM expertise in demand from local businesses, such as Helios Towers Africa as it launched its first international bond. Edward Russell-Walling reports.

Team teaser

Carl Piccolo, Javier Penino Viñas, Moustapha Ba, Aude Rajonson, Gbeminiyi Ade-Odiachi

With appetite for fixed-income investment close to an all-time high, emerging markets have been enjoying some of the benefits – at least until recently. In Africa, the hunt for yield has helped a growing number of corporates and banks to gain their first access to international bond markets, and the beefed-up debt capital markets (DCM) team at Standard Bank, Africa’s largest bank, has been on the case.

An improving macroeconomic and political backdrop on the continent has helped developments, with commodity prices having a good run and inflation largely under control. “African economies have enjoyed a period of sustained growth, with a higher level of political stability than in previous cycles,” says Javier Penino Viñas, Standard Bank’s head of DCM.

Mr Penino Viñas points out that several of the continent’s sovereigns have been tapping international fixed-income demand more creatively. This has set the scene for corporates and financial institutions with sufficiently large balance sheets to consider raising their own debt in the capital markets.

“Standard Bank has been well placed to capture this business, because of its balance sheet and its African presence,” says Mr Penino Viñas. Besides its own resources, the South African bank has access to the balance sheet (mainly for loans) of its 20% shareholder Industrial and Commercial Bank of China (ICBC). It has also refocused entirely on Africa, to the exclusion of the rest of the world.

Seeking Africa’s top slot

This shift dates back to 2015, when the Johannesburg parent sold 60% of its London-based global markets business to ICBC, together with an option to buy another 20% within five years. Since then, Standard Bank has concentrated wholly on the African continent. “We have a clear objective to be the pre-eminent bank and investment bank in Africa,” says Mr Penino Viñas.

Mr Penino Viñas joined the bank in late 2016, having previously been head of DCM for sub-Saharan Africa at JPMorgan. Other recent DCM hires have included high-yield specialist Moustapha Ba from Société Générale. “We now have the right team in place to unlock the value of our franchise,” says Mr Penino Viñas.

If big-picture economics have been positive for African corporate issuance, so too has a more analytic approach by investors. “We have seen good demand across a broadening range of jurisdictions,” says Mr Penino Viñas. “But corporate emerging market investors have also been more open minded. They have been looking through certain sovereign backdrops that might have made them wary, and focused instead on the quality of management.”

A towering presence

A case in point involved the DCM debut of Helios Towers Africa (HTA) in 2017. Privately owned and headquartered in London, HTA owns and operates mobile phone towers in Tanzania, Democratic Republic of Congo (DRC), the Republic of Congo and Ghana. While DRC and Tanzania account for the bulk of its profits, no corporate with key operations in either jurisdiction had ever issued an international bond.

Nonetheless, these are all high-growth markets and HTA could point to stable, sustainable revenues, backed by long-term agreements and relationships with global mobile operators. Standard Bank was joint lead manager and bookrunner on HTA’s inaugural bond, a $600m five-year Rule 144A Reg S bond offering.

Africa is so vital for Standard Bank and its joint ventures that we must be there through thick and thin. Investors know we will provide markets 100% of the time  

Carl Piccolo

“We were able to get investors focused on the credit story, and on the steps that management had been taking in those jurisdictions,” says Mr Penino Viñas. After investor meetings in Europe, the US and Asia, the offer was launched with initial price thoughts of mid-9%, later tightened to final price guidance of the 9.25% area. The deal was finally priced at par with a coupon of 9.125%, and the bonds traded up in the secondary market.

Liquid's solid debut

Similarly, Liquid Telecommunications was able to make its first visit to the international markets despite a meaningful presence in Zimbabwe, for example. The company, also privately owned and London-based, describes itself as the leading independent data, voice and intellectual property provider in eastern, central and southern Africa. It also operates in DRC and Tanzania, as well as more developed countries such as South Africa and Mauritius.

With Standard Bank as a joint lead and bookrunner, Liquid sold a $550m five-year bond with an 8.5% coupon, in line with initial price thoughts. “Investors looked through Liquid’s Zimbabwean presence and focused on its pan-African operations,” says Mr Penino Viñas.

That was in July 2017. Secondary market performance was strong enough to persuade Liquid to return to market in November, when it was able to improve on its pricing. It launched a tap of the five-year bond with initial price thoughts in the 104.5% area. A $180m transaction was finally priced at 105%, or a yield to call of 6.93% and to maturity of 7.21%.

Standard Bank was also a joint lead on mid-2017’s $1.05bn inaugural bond for Sibanye Gold of South Africa, and on Puma Energy’s bond issue in October of that year. Puma issued $600m of seven-year senior notes to fund a $590m tender offer on its $1bn 6.75% notes due in 2021. The new notes had a 5.125% coupon, thereby reducing debt costs while extending the company's maturity profile. The proceeds are being used to improve infrastructure in Africa.

Shortly afterwards, Standard Bank was joint lead and bookrunner in another liability management exercise, this time for Nigeria's Fidelity Bank. It issued $400m of five-year bonds with a 10.5% coupon to fund a $256m tender offer on its $300m 6.875% notes due 2018. “This was the largest combined new issue and liability management offering by a Nigerian issuer,” says Mr Penino Viñas.

Carl Piccolo, Standard Bank’s head of fixed-income syndicate, points to another feature of his bank that is important to investors. “They need a trading partner,” he says. “Africa is so vital for Standard Bank and its joint ventures that we must be there through thick and thin. Investors know we will provide markets 100% of the time.”

The bank is the leading provider of liquidity in sub-Saharan Eurobonds, Mr Piccolo adds. “And if you add in local currency bonds, we are even more dominant,” he says.

Last year was the biggest ever for capital markets debt out of Africa, and early 2018 saw this momentum continue. The euphoria has since died down somewhat, however, as the US Federal Reserve carried out its first rate hike of the year – indicating there could be more in the pipeline – and as geopolitical and trade tensions mounted.

A new mood

One hint of a new mood, particularly towards African corporates, came in late March when HTA scrapped plans for an initial public offering in London and Johannesburg. News of the listing, said to value the company at a possible $2bn, had broken only weeks earlier, and the cancellation was thought to reflect lukewarm investor appetite.

A bond from Seplat Petroleum, an oil and gas producer operating in Nigeria’s Niger Delta, struggled to attract orders and had to be significantly downsized. That said, given the delta’s history of pipeline attacks, simply completing the transaction was something of an achievement.

Standard Bank was a joint global coordinator on Seplat’s $350m five-year deal with a 9.25% coupon that traded up in the secondary market. African accounts took 21% of the paper, an unusually high proportion. “It was a strong story of good management in a region with a lot of history,” says Mr Penino Viñas.

Mr Piccolo adds that while 2018 got off to a flying start, US interest rate policy and its possible effect on the yield curve have caused emerging market investors to step back. “There has been a lot of volatility, but the market is still functioning, and the longer end of the curve has been absorbing the volatility at the shorter end,” he says.

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