The Deals of the Year winners from Africa.

Bonds: Corporates

Winner: Idwala Industrial Holding, R1.56bn bond, South Africa
Bookrunners: Nedbank Capital, Rand Merchant Bank

Highly commended: Afren $300m bond

Private equity-owned Idwala, a South African miner of lime and industrial minerals, came to the market in July 2012 looking to refinance R1.6bn ($173m) of bank debt. What it ended up with was the largest rand-denominated high-yield bond to date, a R1.6bn four-year floating rate note.

The deal was complicated by the borrower needing to negotiate with holders of its other debt facilities and ensure they were comfortable with the terms of the new transaction. But once that was overcome, Nedbank Capital and Rand Merchant Bank, the bookrunners, set about luring local and international investors, something they helped ensure by listing the bond on the Johannesburg Stock Exchange.

The book building was carried out on a competitive basis, which is a fairly new concept for high-yield deals in South Africa. This led to the bond being twice oversubscribed and priced at the tight end of guidance. The R1.05bn senior secured bullet tranche came with a coupon of 383 basis points (bps) over the Johannesburg Interbank Agreed Rate (Jibar), while the R550m amortising note paid Jibar plus 360bps. Despite South Africa’s corporate bond market being illiquid, the tranches soon tightened to 344bps and 324bps, respectively.

Bankers say the deal has demonstrated that medium-sized firms can enter South Africa’s capital markets and raise large sums with innovative structures. They expect it to lead to similar transactions over the medium term.

The judges were also impressed with a $300m senior secured bond for Afren, an oil and gas company listed in London but with the bulk of its assets in Africa. The deal, issued in March 2012 and only Afren’s second in the international capital markets, came after the company expanded out of Africa for the first time, into Kurdistan in Iraq.

Bonds: SSA
Winner: Namibia R850m bond
Bookrunners: Absa Capital, Rand Merchant Bank

Highly commended: Lagos state government N80bn bond; Zambia $750m bond

In November 2012, Namibia set up a R3bn ($368m) medium-term note programme on the Johannesburg Stock Exchange (JSE). Shortly afterwards, it issued a R850m 10-year deal. In doing so, it became the first foreign sovereign to sell a rand bond. It also showcased the JSE as an exchange on which regional entities can raise capital and list their securities. Bankers at Absa Capital and Rand Merchant Bank, the deal’s bookrunners, say it marks a positive start to attempts by the South African government to foster integration between regional capital markets.

Lesotho and Swaziland, which, like Namibia, peg their currencies to the rand, are touted by some analysts as two sovereigns that could follow in the wake of this ground-breaking deal.

Others say it will also encourage non-regional borrowers to issue in South Africa. Aside from Namibia, only a few non-local entities, Goldman Sachs and Macquarie among them, have sold rand-denominated bonds.

Namibia, one of the few investment-grade African sovereigns, with a rating of Baa3 from Standard & Poor’s and BBB- from Fitch, received R1.78bn-worth of bids for its bond. Such demand enabled it to price at 105 basis points above the curve of the South African sovereign, equating to a coupon of 8.26%. The deal helped further diversify Namibia’s funding following its well-received $500m debut Eurobond in October 2011.

The judges commended Zambia’s capital markets debut and an N80bn ($487m) seven-year bond sold by the state government of Lagos in November last year. The Lagos deal was the largest ever sub-sovereign issue in Nigeria, and will help the borrower fund improvements to its infrastructure and education system.

Equities
Winner: Lonmin $817m rights issue, South Africa
Bookrunners: Citi, HSBC, JPMorgan, Standard Bank

Highly commended: Shoprite R4.5bn convertible bond

South Africa’s mining industry had a mostly torrid year in 2012. Strikes early on led to significant falls in platinum production. The situation continued to worsen and reached crisis proportions in mid-August when 34 striking miners were shot dead by police at Lonmin’s Marikana platinum mine, near the administrative capital, Pretoria.

For Lonmin, the tragedy of the lost lives and the closure of the Marikana mine, which led to the loss of 45,000 ounces of platinum production, put it in a perilous state.

Its finances were already under pressure due to falling demand for the metal, particularly in the European automotive industry. There was the very real possibility that it would breach its debt covenants.

The company managed to avoid that outcome thanks to an $817m rights issue in Johannesburg and London. The deal was complicated not only because of Lonmin’s well-publicised problems, but because of its dual listing and the differences in the rights offer timelines. Nonetheless, Lonmin and its bookrunners – Citi, HSBC, JPMorgan and Standard Bank – moved swiftly, completing the equity raising on December 10 last year, having announced it on November 6.

Lonmin, offering nine new shares for every five held, saw an uptake of 97%. The rump was three times covered within an hour of launching. The complex transaction, which represented more than 50% of Lonmin’s market capitalisation, was the largest African rights issue last year. Most of the proceeds were used to pay down debt, which has left the company in a far better position financially.

Another notable equity deal was South African supermarket group Shoprite’s R4.5bn ($492m) convertible bond. The transaction was the largest ever rand equity-linked deal and gave a boost to the country’s very nascent convertible market.

FIG capital raising
Winner: FirstRand R1.5bn subordinated bond, South Africa
Bookrunner: Rand Merchant Bank

Highly commended: African Bank $350m note
The new capital requirements laid out by the Basel committee have caused headaches for banks all over the world. Treasurers have had to find flexible and innovative ways of getting their institutions up to scratch.

FirstRand, South Africa’s second largest lender by assets, did just that when it issued a R1.5bn ($164m) subordinated bond in December 2012 that not only qualifies as entry-level Basel III debt, but will also be fully compliant when the new statutory regime is introduced. The pioneering deal was the first of its type in South Africa and followed an extensive analysis by FirstRand of its own needs and the future Basel regulations. Bankers expect other South African lenders to follow FirstRand’s lead and issue similar transactions. One, Investec, has already done so.

FirstRand came to the market offering investors fixed and floating rate notes. Demand for the latter was high enough (R3.2bn of bids were made) to ensure that a fixed-rate bond was not needed. The deal was priced at 285 basis points (bps) above the Johannesburg Interbank Agreed Rate, which was slightly inside the guidance of 300bps. It has a 10-year maturity, with First­Rand able to call it after five years.

A $350m senior unsecured bond issued by South Africa’s African Bank, which specialises in providing personal loans to the lower middle classes, was commended by the judges. The deal, printed in February last year and led by Credit Suisse, Goldman Sachs, Rand Merchant Bank and Standard Chartered, was the borrower’s second foray into the international capital markets. It has since followed up by issuing Swiss franc bonds.

Infrastructure and project finance
Winner: $191m financing of district hospitals for the Ghanaian government
Mandated lead arrangers: Barclays, Citi, JPMorgan

Highly commended: Olam Palm Gabon CFA franc 54bn and E85m deal; Egyptian Refining Company $2.6bn facility

This year’s infrastructure and project finance winner for Africa was an innovative deal backing the design, construction and equipping of seven district hospitals in Ghana as well as the provision of a centralised pharmaceutical and medical supply management system. The government of Ghana obtained a UK Exports Credits Guarantee Department-backed 12.5-year loan of $162.6m, provided by Citi and JPMorgan, and an uncovered cedi-denominated loan equivalent to $28.8m that was provided by Barclays Ghana.

The funding, which was signed in October, was completed quickly by the standards of infrastructure deals in Africa, closing eight months after it had been mandated.

The transaction was impressive not only for being carried out swiftly (deals of this nature often take well over a year to complete) but because it helped disprove the notion that social development deals need to have development agencies on board if they are to pass smoothly. It also was an unusual deal because of the fact the contract for the construction was awarded to a mid-sized company, the UK’s NMS Infrastructure, thus showing that it is not just big firms that are capable of winning large export contracts on the continent.

Two other financings that the judges commended were a $228m-equivalent loan for Olam Palm Gabon that funds the establishment of a 50,000-hectare palm oil plantation and crushing mill in the country (Ecobank Capital was the mandated lead arranger), and a $2.6bn facility led by Société Générale for Egyptian Refining Company that will upgrade its facilities and enable it to produce diesel.

Islamic finance
Winner: Societe Anonyme Morocaine De I’Industrie Du Raffinage $180m murabaha facility, Morocco

Bookrunner: International Islamic Trade Finance Corp

Islamic finance in Africa is still in its infancy, despite the large number of Muslims residing in the continent. That it likely to change in the coming decade as African countries develop their capital markets. Some progress is already being made, however. This year’s winning deal, a $180m murabaha facility for Societe Anonyme Morocaine De I’Industrie Du Raffinage (Samir), a Moroccan company mainly involved in refining crude oil and which meets about 70% of the north African country’s demand for petroleum products, is an example of that.

The murabaha was the first structured trade finance facility to come out of Morocco and, according to bankers, should lead to more such transactions from the region. The deal, which was sold to investors in the Middle East, Europe and Asia, has an innovative security package that allows for the mitigation of key commodity risks (the funding will be used to import petroleum products). It includes a warehouse receipt designed to provide enough coverage to absorb oil price fluctuations and a financial guarantee from Samir in the case of further deviations in the price of crude oil.

The facility kicks in when, at the request of the purchaser, the investment agent buys the commodity from a broker on behalf of the financiers and then, after receiving the ownership title, sells the commodity to the purchaser on a deferred payment basis.

Loans
Winner: IHS Holdings 102bn CFA franc syndicated loan, South Africa
Mandated lead arranger: Ecobank Capital

Highly commended: Konkola Copper Mines $700m facility; BB Energy $400m secured borrowing base deal

Africa’s telecoms market has boomed in the past decade, with mobile and internet penetration rates growing across the continent. The winner of this year’s most impressive loan from Africa was a 101.5bn CFA franc ($204m) deal which backed HIS Holdings’ takeover of South African telecoms firm MTN’s 1750-odd mobile network towers in Cameroon and Côte d’Ivoire. The financing will also support the agreement between the two companies that IHS upgrades the network to support MTN’s future requirements.

The loan, led by Togo-based Ecobank’s investment banking arm, came alongside a $125m equity investment made by IHS towards the deal, which bankers say will help further develop telecommunications infrastructure in the two countries.

The facility comprised a Cameroonian tranche of 52bn central African francs, split between a 32bn CFA franc five-year piece and a 20bn CFA franc seven-year facility. Five banks committed alongside Ecobank. For Côte d’Ivoire, the funding comprised a single five-year tranche of 49.5bn west African francs (both the west and central African currencies, although independent of each other, are known as the CFA franc and have the same exchange rate). Six banks, including Ecobank, were involved in that part of the financing.

The innovative deal demonstrated Ecobank’s ability to raise dual-currency funding for its clients in more than one jurisdiction.

Two other syndicated loans particularly impressed the judges. One was a $700m deal arranged by Standard Bank and Standard Chartered to fund Konkola Copper Mines’ development of a brownfield site in Zambia. The other was a $400m revolving secured borrowing base loan to back energy trader BB Energy’s importation of oil to Mauritania. Société Générale led the transaction.

M&A
Winner: Tiger Brands acquisition of a 63% shareholding in Dangote Flour Mills, Nigeria
Advisor to Tiger Brands: Standard Bank Broker to Dangote: Vetiva Capital Management

Highly commended: Public Investment Corporation takeover of a 19.6% stake in Ecobank; Qatar National Bank’s acquisition of 49% of Libya’s Bank of Commerce & Development

Mergers and acquisitions activity has been muted in Africa over the past two years. As has been the case elsewhere in the world, buyers have been wary about carrying out large takeovers amid a still fragile global economic recovery.
However, there are signs that investors are increasingly eager to buy assets in sub-Saharan Africa, which, while not immune from the rest of the world’s economic plight, is growing faster than any other region. South African consumer goods firm Tiger Brands’ $165m acquisition of a 63.35% stake in Dangote Flour Mills, a Nigerian company listed in Lagos, exemplifies this bullishness.

The deal, announced in May 2012, was a significant one for Tiger Brands, which has a R50bn ($5.5bn) market capitalisation.

This was its third, and largest, takeover to date in Nigeria and formed a major part of its long-term ambitions to increase its presence on the continent outside of South Africa.

Standard Bank was able to facilitate the deal thanks to its deep knowledge of the Nigerian market (it has a large subsidiary, Stanbic IBTC, there). Despite the deal being complex due to its cross-border nature and the two companies being listed on exchanges with different regulatory regimes, it was concluded swiftly.

The judges commended a $250m acquisition by Public Investment Corporation, an arm of the South African state pension fund, of a 19.6% stake in Ecobank. The deal was the fund’s first direct investment outside South Africa. Also commended was Qatar National Bank’s takeover of a 49% in Libya’s Bank of Commerce & Development.

Real estate finance
Winner: R2.2bn Alice Lane office development, South Africa
Finance solution provider: Standard Bank

The Alice Lane site in Sandton, an upmarket area of Johannesburg, South Africa, was bought in November 2011 by a consortium comprised of three property developers, Standard Bank Properties (SBP), Abland and Pivotal Fund. Standard Bank, which owns SBP, provided debt funding to each of the joint-venture partners independently, and equity finance to SBP.

The funding has enabled the first two phases of the development to commence and followed leases being concluded with tenants such as Virgin Active, which operates gyms, Bloomberg and Sanlam, a large South African insurer. Completion of these phases, which will cost R894m ($98m), is expected by September 2014. The third and final phase should finish two years later. The total cost of the complex development is expected to be R2.2bn.

Standard Bank provided debt tailored to each venture partner’s needs and financial strength. An embedded pricing, gearing, covenant and repayment mechanism was structured for SBP and Abland. As pre-let triggers were met, the funding was increased and pricing margins lowered. The facility for Pivotal, an unlisted property fund, was structured to take into account the fact it was financing its share of the development costs solely through debt, unlike the other two partners.

The innovative and flexible financing package is viewed as a key part of Alice Lane’s success so far and has been credited with allowing the development to proceed ahead of schedule and on a grander scale than initially envisioned.

Restructuring
Winner: Afrisam R20bn restructuring, South Africa
Advisors to Afrisam: Houlihan Lokey and Rand Merchant Bank

Few restructurings are as complicated as that of Afrisam, which was completed in February 2012. The South African cement and concrete producer came unstuck following a sharp downtown in the country’s construction sector. By early 2011, its position was perilous. It had net debt totalling just under R20bn (then $2.9bn), equivalent to more than 12 times its earnings before interest, tax, depreciation and amortisation (Ebitda). The figure was more than 15 times Ebitda when preference shares were taken into account.

Afrisam engaged Houlihan Lokey and Rand Merchant Bank as advisors in January 2011. Their first task was to address their client’s short-term liquidity strain caused by an expensive out-of-the-money cross-currency swap. They managed to get the hedge payments deferred for six months, after which the swap was taken on by a friendly bank which unwound it and held it on behalf of one of Afrisam’s shareholders.

Complicating matters further was the need to maintain Afrisam’s status as a Black Economically Empowered (BEE – a programme launched by the South African government aimed at addressing the inequalities of Apartheid) company. (It was a BEE transaction in 2007, required for Afrisam to maintain its limestone mining licences, that caused it to take on so much debt initially.) This was achieved when the government-owned Public Investment Corporation and Pembani, a BEE investment group, bought 60% of Afrisam’s e1bn senior bond. They later converted the instrument to equity, leaving them owning 95% of Afrisam. The rest of the bond was repaid when the advisors arranged a R5.2bn bridge loan from a consortium of local banks.

Despite different views among Afrisam’s debt holders and shareholders, the advisors were able to negotiate a deal that received the majority consent of both sets of parties. The restructuring, when completed, resulted in a significant deleveraging (Afrisam was left with R6.8bn of net debt, equivalent to just 4.2 times Ebitda) and a simplification of the company’s corporate structure. It was also done in such a way as to equitise or replace all of Afrisam’s foreign currency-denominated debt, leaving it only with rand liabilities.

Securitisation
Winner: Skye Bank $150m future flow securitisation, Nigeria
Bookrunners: Afrexim, Citi, Standard Bank

Highly commended: Al Rehab Securitization Company, E£158m auto-securitisation

Africa’s banks are increasingly tapping international debt markets, but few of them attempt anything beyond vanilla Eurobonds or syndicated loans.

Skye Bank, Nigeria’s eighth largest lender by assets, according to The Banker Database, did, however. In April last year, it brought to the market the first public future flow securitisation from the country. The $150m five-year deal, which was sold to bank investors in Africa and the UK, is secured against remittance flows generated by Skye through the money transfer operator Western Union. That the facility is repaid through foreign currency-denominated offshore cashflows mitigates the convertibility risk for investors. Remittances are, moreover, viewed as a reliable source of flows, even in volatile economic periods.

For Skye, the deal provided cheaper funding than an unsecured transaction would have. Standard Bank, which led the deal, reckons the pricing was 10% to 15% tighter than the level at which a normal Eurobond would have been sold. Moreover, emerging market banks have in recent years struggled to access funding of more than three years in the syndicated loan market, making Skye’s five-year transaction look very favourable from a maturity perspective.

Remittances to most of Africa are increasing quickly. Nigeria, however, is still the destination for as much as 50% of flows to sub-Saharan Africa, with most of those coming from the US and UK, where there are large Nigerian diaspora populations.

The other deal to catch the eye of the judges was a E£158m ($23.4m) securitisation for Al Rehab Securitization Company, the first securitisation of an auto trader in Egypt. Furthermore, it was closed in April 2012, amid a turbulent political and economic environment in the country.

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