The Deals of the Year 2017 winners from Africa.

Bonds: Corporate 

WINNER: MTN’s $1bn dual-tranche Eurobond 

Joint bookrunners: Bank of America Merrill Lynch, Barclays, Citi, Standard Bank

This benchmark issuance by Africa’s biggest wireless carrier, MTN, in October 2016 is testament to the banks that brought it to market. Against a tumultuous backdrop, MTN Group made its second foray into the international bond markets, selling a long five-year $500m and 10-year $500m senior unsecured Eurobond in RegS/144A format. With the help of Bank of America Merrill Lynch, Barclays, Citi and Standard Bank, the deal was a success and achieved competitive pricing.

Earlier in the year the Johannesburg-headquartered company had been fined $1.7bn by the Nigerian Communications Commission and had reported its first ever half-yearly loss. Furthermore, after roadshows commenced in the US and London in September it became clear that Standard & Poor’s was rethinking the Nigerian government’s credit rating. It downgraded the sovereign on September 16 from B+ to B. Following this, MTN’s own rating – which is capped by a blend of the sovereigns of its two biggest markets, South Africa and Nigeria – was lowered one notch to BB+ (stable).

Nevertheless, the deal was reintroduced to the market on October 4 after positive feedback from investors. The issuance was 50% oversubscribed and the long five-year notes carried a coupon of 5.373% (the tight end of guidance) and 10-year notes a 6.5% coupon. The books were dominated by high-quality accounts, with US and UK asset managers taking the lion’s share of orders. 

Aside from helping MTN fund its capital expenditure and pay down working capital facilities, it was a breakthrough for regional capital markets. It was the biggest Eurobond by an African telecoms provider and ended the 15-month drought of the continent’s corporates tapping the dollar-denominated public debt markets. It proved the existence of investor appetite for emerging market debt, particularly in Africa, despite the strong US dollar and rising rates. As a result, a number of other African corporates followed suit in the subsequent months. 

Bonds: SSA 

WINNER: Republic of South Africa’s $3bn bond and switch offer

Joint lead managers: Barclays, HSBC, JPMorgan, Nedbank

When South Africa’s government tapped the international bond markets for the second time in 2016, it combined the capital raising with a precedent-setting liability management exercise. The outcome was a benchmark-sized deal that paves the way for more innovatively structured Eurobonds out of the region, and which allowed the sovereign to achieve its lowest ever borrowing costs for dollar-denominated debt. 

The new issuance aspect of the transaction is impressive in itself. The $3bn dual-tranche bond, consisting of $2bn of 12-year notes and $1bn of 30-year notes, is the biggest ever by a sub-Saharan African sovereign. Launched in late September, it was carefully timed to avoid the mid-year volatility and precede a mid-term budget announcement. 

The transaction’s real innovation, however, lies in the switch offer. This gave holders of the government’s outstanding bonds due to expire in May 2019 and March 2020 the option to tender them for cash or switch into the new 12-year notes. Those choosing to switch were prioritised over new cash buyers and amounted to $701m of the $2bn new-issue tranche. In the end, the issuer did not accept any of the cash tenders. 

With the guidance of Barclays, HSBC, JPMorgan and Nedbank, the South African government executed the first accelerated switch tender offer out of the central and eastern Europe, Middle East and Africa region. Conducting it within the same day as the new issue built significant price tension which led to the two new tranches being more than two-and-a-half times oversubscribed. With a combined order book amounting to about $7.5bn, the new notes were competitively priced, with the 12-year notes carrying a 4.3% coupon and the 30-year notes 5%. 

The simultaneous switch offer allowed the government not only to achieve its funding goal (the proceeds are being put towards foreign currency commitments and to pre-fund part of its 2017 borrowing needs), but also extend its debt maturity profile and reduce redemptions due in 2019 and 2020. It is no surprise that other issuers in the region are expected to look at replicating the structure. 

Capital raising: FIG 

WINNER: Banque Ouest Africaine de Développement $750m Eurobond

Joint lead managers and bookrunners: BNP Paribas, Deutsche Bank, JPMorgan, Standard Bank

Its name may not be familiar, but Banque Ouest Africaine de Développement (BOAD) is playing a critical role in economic advancement throughout western Africa. As the regional development bank of the eight countries that comprise the West African Economic and Monetary Union, BOAD is the region’s leading financing arm and is fostering development in some of the world’s poorest countries, including Niger, Burkina Faso and Guinea-Bissau.

It is one of Africa’s few investment grade issuers, making it better placed than many on the continent to raise funds in the international bond markets. In April it did exactly that, selling $750m in five-year, senior unsecured notes issued in 144A/Reg S format. 

BOAD was relatively unknown within the international investor community so a targeted marketing and investor education were crucial. In January 2016, a roadshow was conducted in London, New York and Boston to position BOAD’s credit story to emerging market fixed-income investors

In April 2016, following global investor calls the joint lead managers and investors took advantage of improved market conditions to successfully price the transaction. It proved a resounding success. With total demand reaching about $1.8bn, the initial target of $500m was increased to $750m and the final coupon set at 5.5%. This represents a significant debt servicing benefit compared with their existing funding base. The notes have traded well in the aftermarket.

The inaugural deal is a milestone for BOAD, which viewed access to the international capital markets as a precondition to fulfilling its 2015-2019 Strategic Plan which aims to accelerate regional integration and support more inclusive growth, infrastructure and services. It offers a way to raise more debt than what is typically available via regional capital markets and bilateral funding. The proceeds will help grow its lending business.

As the region’s first development bank to issue a Eurobond, it paves the way similar issuers to follow suit, too. 


WINNER: Domty IPO on the Egyptian Exchange

Sole global coordinator and bookrunner: EFG Hermes

In March 2016, Cairo-headquartered Arabian Food Industries Company, better known as Domty, listed on the Egyptian Exchange, ending the country’s nine-month initial public offering (IPO) drought. The dairy goods producer – which goes by the name of its flagship product, Domty cheese – listed 49% of its share capital to raise E£1.15bn ($63.4m) (which at the time, before Egypt’s currency was unpegged, equalled $125m). 

Despite the difficult equity market, Domty decided to press-ahead with its flotation as it needed funds to pursue its growth strategies, which included introducing new products and entering joint ventures to gain access to Africa’s high-growth markets. EFG Hermes, as sole global coordinator and bookrunner, created a two-pronged approach to help its client achieve its goal. 

First, it got a handful of top-tier institutional investors to become cornerstones, thereby sending a signal of confidence to public investors. After 25 early-look meetings in three cities over four days in early December 2015, $77m of capital was committed by high-profile buy-side firms.

Second, it derisked the public offering further by conducting an accelerated management roadshow – meeting 130 investors over five days in March 2016 – to minimise the timespan between going live and trading.   

These tactics, combined with a compelling equity story, meant the IPO was snapped up by investors. Books were six times oversubscribed and shares were offered at E£9.20, the top end of the range. It climbed on its first day of trading, eventually closing 10% up on its listing price. 

Domty relies heavily on imported raw materials, so it has been hit by the Egyptian pound’s 50% plunge against the US dollar following the government’s decision last November to let it freely float. Nonetheless, Domty is pushing ahead with its expansion plans, including a new bakery line, none of which would have been possible without its public listing. 

Green finance 

WINNER: Kathu Solar Park project financing 

Coordinating bank and financial modeller: RMB

Mandated lead arrangers: ABSA, Investec, Nedbank, RMB

Since 2011, South Africa has been home to a world-class green energy scheme. The Renewable Energy Independent Power Producer Programme (REIPPP) has created a bankable framework for green power projects based on an innovative competitive bidding process and government guarantees that mitigate payment risk. Over its first five years, the programme attracted enough private funds and expertise to launch more than 100 independent power producers, which are delivering power at a lower cost than new-build fossil fuel stations.

The REIPPP built on that success in 2016 with Kathu Solar Park. A 100-megawatt greenfield concentrated solar power project, it is one South Africa’s biggest and most ambitious renewable transactions to-date. 

The R12bn ($923.5m) project was led by Rand Merchant Bank (RMB) and funded via a combination of equity and debt provided by a group of local lenders. The package includes a R2.5bn of 19-year inflation-linked debt tranche, the biggest of its kind in South Africa, which was structured and arranged by RMB.

The project benefits from a strong sponsor group, led by France’s Engie, and also includes Investec Bank, Lereko Metier, the Public Investment Corporation, the SIOC Community Trust and the Kathu LCT Community Trust. They have designed a plant that makes use of impressive technology. Kathu will be equipped with a molten salt storage system that allows four-and-a-half hours of thermal energy storage. That allows for less intermittent generation, and enables the plant to supply power at peak times. It is one of only four renewable projects in South Africa that have this power storage capacity.  

Supported by the Development Bank of Southern Africa, Kathu has secured a 20-year offtake agreement and is expected to be connected to the national grid in 2018. It is anticipated that it will produce enough power to supply approximately 50,000 households. The plant is also a significant source of job creation in the Northern Cape Province where it is being built. 

Infrastructure and project finance 

WINNER: Amandi Energy Power Plant 

Co-mandated lead arrangers: Nedbank, RMB

Ghana has suffered chronic electricity outages in recent years. The lack of a reliable power supply has hurt investor confidence, making it difficult for the economy, which has been hit by the slump in commodity price, to regain its status as the poster child of African growth.

Steps taken by the government to resolve this matter have fallen short, but an independent power producer (IPP) project known as the Amandi Energy Power Plant could prove instrumental in battling the country’s power shortages. In December 2016, construction of the 192-megawatt combined cycle dual-fired plant started in the western part of the country. 

It is one of only two large, base-load IPP projects in sub-Saharan Africa to reach financial close in 2016. Once it comes online – scheduled for 2019 – the plant could power up to 1 million households.  

The $552m project, in which Rand Merchant Bank (RMB) played a pivotal role, is being funded by a combination of $134m in equity and $418m in senior debt. The equity stakeholders are three Africa-focused independent power developers: Amandi Energy, Endeavor Energy and Aldwych International. The debt is being provided by RMB, Nedbank and three development finance institutions including the US government’s Overseas Private Investment Corporation (OPIC). OPIC also provided political risk insurance, the first time it has done so for an African transaction.

An added complication was created by the fuel provider, which required a letter of credit to guarantee payments under the supply agreement. This could have ramped up the project costs, but RMB and Nedbank responded by creating an innovative special facility that avoided the need for the letter of credit to be cash-collateralised. 

Aside from energy generation, the plant is strategically important to Ghana in other ways. Its construction is expected to create about 400 jobs and the project company will employ up to 100 people full time. In another mark of sustainability, once natural gas from the offshore Sankofa field becomes available, it plans to switch fuel suppliers to support the new field. Finally, despite the challenging economic backdrop, the project suggests that international investors and lending community have faith in Ghana’s recovery. 

Islamic finance 

WINNER: Africa Finance Corporation $150m murabaha sukuk 

Bookrunners: Emirates NBD Capital, MUFG, RMB

Of all the multilateral institutions working in emerging markets in the world today, Africa Finance Corporation (AFC) has among the toughest mandates. It was established 10 years ago with the goal of addressing the continent’s infrastructure gap, which the World Bank has put at $93bn per year. By providing the full suite of project services – including early-stage risk capital, project design, structured products and technical advisory services – it is helping to create more bankable projects that attract a broader range of private investors.

AFC itself has also tried to diversify its funding base, and in January 2017 it became the continent’s first supranational to issue a sukuk. The privately placed murabaha sukuk received an A3 senior unsecured rating by Moody’s, making it the highest rated dollar-denominated sukuk out of Africa. The three-year notes priced at the lower end of guidance, and the initial target of $100m was increased to $150m due to investor demand. 

 The Lagos-headquartered issuer’s credit rating is among the highest in Africa and, since it first borrowed in the global loan markets in 2011, has been a trailblazer in the internationalisation of African capital markets. Its inaugural Eurobond in April 2015 was more than six times oversubscribed and in 2016 it raised SFr100m ($99.3m) in its debut Swiss franc-denominated bond.

The principles underpinning Islamic finance, including the ethical use of proceeds, make sukuk a perfect instrument for AFC, which focuses on projects with a tangible, positive social impact. It also allows the issuer to build relationships with new investors and raise greater awareness about its work throughout Africa.

The deal also builds momentum for the adoption of Islamic finance throughout Africa. The continent’s large Muslim population and the fact sukuk is usually backed by infrastructure or other types of property makes sharia-compliant finance a perfect fit for its funding needs. AFC’s sukuk strengthens the chances of this vision becoming a reality.

Leveraged finance and high yield 

WINNER: $540m-equivalent funding of Liquid Telecom’s acquisition of Neotel

Liquid Telecom loan: Standard Bank, Standard Chartered, Barclays, RMB, ING, AfrAsia Bank, Bank of China

Neotel loan: Standard Bank, Nedbank Capital

Early in 2017, Mauritius-headquartered Liquid Telecommunications closed one of the most notable transactions in Africa’s burgeoning telecoms sector. It purchased Neotel, South Africa’s communications network operator, for R6.55bn ($504m), thereby creating the largest pan-African broadband network. 

At the time of signing, Liquid Telecom’s CEO hailed the transaction as milestone in delivering cost-effective and reliable international connectivity across sub-Saharan Africa.

The deal was helped along by South African investment group Royal Bafokeng Holdings, which acquired a 30% stake in Neotel alongside Liquid Telecom. It also would not have been possible without a craftily structured financing package led by Standard Bank. The deal required the equivalent of $540m in dual-currency funding in Mauritius and South Africa. 

Standard Bank, which also advised on the acquisition, underwrote and arranged a six-year $300m term loan for the purchaser, which it subsequently syndicated to lenders from Europe, Asia and Africa. The proceeds of this loan, which is a significant sized dollar-denominated tranche for the African market, was used to buy Neotel, to refinance existing debt and as working capital.

Simultaneously, a 15-month R3.3bn tranche of acquisition funding was provided to Neotel to refinance its debt and for general capital expenditure. These funds helped get the target in shape for its absorption into Liquid Telecom.

Standard Bank was the linchpin of the funding package. For Liquid Telecom’s loan it acted as initial mandated lead arranger, underwriter, bookrunner and global coordinator. For Neotel’s funding it was joint mandated lead arranger and lender. 

The Johannesburg-headquartered bank’s ability to act in multiple roles, across a number of jurisdictions and provide a multi-currency solution was crucial to the deal’s success. 


WINNER: Neconde Energy $640m facility

Structuring bank and joint mandated lead arranger: FBN Capital

Facility providers: Access Bank, Diamond Bank, FBN Bank, Fidelity Bank, Guaranty Trust Bank, Zenith Bank

The collapse in oil prices from mid-2014 onwards has kept petroleum companies on their toes, and required banks to devise some nifty solutions to help smaller players through the slump. This refinancing for Neconde Energy, an independent exploration and production company, is a good example.

In 2015, the Nigeria-based firm realised it would need to refinance a $640m dual-tranche facility which, in part, had been used to refinance a reserve-based loan. Neconde had been hit by weakened cash flow and, in addition to refinancing its outstanding loan, needed fresh funds to finance a well programme. 

The solution was a $640m senior secured, medium-term facility that included some novel features designed to put the borrower on stronger footing and create confidence among the lenders that they would be repaid. It was finalised in June 2016 and is understood to be one of the biggest refinancings in Nigeria’s upstream petroleum sector to date.

FBN Capital, as the structuring bank, took the lead in developing a multi-tranche facility with different tenors – the longest being five years – managed through a single agreement. The covenants and borrower obligations for each tranche were consolidated to ease the monitoring process, and it includes a cash sweep mechanism to ensure that, in designated scenarios, excess cash flows go towards repaying the facility. It is complemented by a unique zero-cost synthetic hedge structure that provides additional protection to the borrower and lenders against a fall in oil prices.

Alongside this facility, Neconde decided against renewing its existing offtake agreement and instead negotiated a new four-year agreement with Glencore Energy UK (which commences this year) that includes more favourable terms. Aligning the maturity of the facility and offtake agreement makes it easier for the borrower to match its cash flows.   

These structural enhancements allow Neconde to extend its repayment profile, and creates a new refinancing template for Africa’s struggling exploration and production companies.


WINNER: Sibanye Gold $294m acquisition of Aquarius Platinum

Adviser to Aquarius: Barclays 

Adviser to Sibanye: HSBC

In 2015, South African-headquartered Sibanye Gold decided to expand into the platinum business through a series of acquisitions. Platinum prices had been dropping since mid-2013, and by September 2015 the turnaround promised by analysts still had not materialised. The market was underpricing the metal, making it a good time for Sibanye to pounce. 

One of its targets was Aquarius Platinum, an independent primary producer with assets in South Africa and Zimbabwe. Aquarius was originally incorporated in Bermuda and had listings on the London Stock Exchange, Australian Stock Exchange and Johannesburg Stock Exchange (JSE), along with American depository receipts (ADR) trading over the counter in the US. Sibanye Gold, meanwhile, is listed on the JSE and has ADRs on the New York Stock Exchange. 

Their combination was a truly cross-border public takeover, which are typically the most difficult form of mergers and acquisitions (M&As). With the guidance of their advisers Barclays (for Aquarius) and HSBC (Sibanye Gold), the sale closed on April 13, 2016.

Investors saw the merits of Sibanye’s strategy. The cash consideration of $0.195 per share represented a more than 50% premium to Aquarius’s closing share price the trading day prior to the deal’s announcement on October 6, 2015. On the day of the announcement, Sibanye’s share price jumped 10% while the JSE All Share Index was flat.

In assessing the proposed deal, all parties had to consider the synergies and any complications presented by Sibanye Gold’s simultaneous pursuit of Anglo American Platinum’s operations in Rustenburg, on which HSBC also advised. This was announced the month before the Aquarius deal’s announcement, and closed in November 2016. 

Together, these deals have created a platform for Sibanye Gold’s strategy to diversify into other commodities and paved the way for its $2.2bn acquisition of US-listed and Montana-based Stillwater Mining Company. Announced in November 2016, the Stillwater transaction is one of African’s most anticipated outbound M&A transactions and presents a transformational opportunity for Sibanye to establish itself as a global precious metals champion.


WINNER: Edcon’s R29bn debt restructure

Financial advisers: Houlihan Lokey, Lazard

Heading into 2016, South Africa’s biggest clothing retailer, Edcon, had endured a tough few years. Owned by US private equity firm Bain Capital since 2007, the company had been hit by rising borrowing costs, a weak rand, low consumer confidence and tighter margins. A restructure in 2015 reduced its debt pile by around R4.5bn ($334.7m), but Edcon still faced a difficult liquidity situation with interest and maturities soon coming due. 

When restructuring specialist Houlihan Lokey was brought in during February 2016, its first action was to buy Edcon some time. A consent solicitation to defer the upcoming interest payments on a tranche of senior secured bonds and a R1.5bn bridge financing gave the embattled retailer leeway to negotiate a long-term solution. 

After running parallel work streams to identify the best outcome, and managing 11 months of complex negotiations with multiple stakeholders in different time zones, a series of transactions were agreed that reduced Edcon’s group debt from R28.824bn to some R19.932bn. That represented a reduction of gross leverage at the operating company level from 17.8 times earnings before interest, tax, depreciation and amortisation to 3.3 times.

The restructuring involved the injection of around R2.895bn of new funds, which consisted of a R575m revolving credit facility and R2.32bn worth of payment-in-kind notes. The payment-in-kind tranche was comprised of a new issuance and repackaging of part of Edcon’s bridge loan. 

Alongside this, senior secured creditors agreed to a debt-for-equity swap in which they exchanged 50% of their outstanding claims for 67% of shares, ending Bain’s control of Edcon. The remainder of the senior creditors’ debt was switched into dollar-denominated notes issued by a new top holding company. Other outstanding debt tranches were novated to new holding companies, converted to payment-in-kind notes and had their maturities extended to December 2022. Most of the remaining operating company debt was extended to the end of 2019. 

Securitisation and structured finance 

WINNER: FirstRand private securitisation

Joint arrangers, derivatives swap counterparties and seniors funders: Citi, JPMorgan

As in other areas of capital markets, South Africa has firmly established itself as the leader of asset-backed securitisation (ABS) in Africa. A respectable local market has developed over the past decade but there are continuing efforts to broaden the range of underlying assets and investors.

In July 2016, South Africa’s second biggest bank, FirstRand, bolstered the market’s maturation with an inaugural private securitisation facility. 

Citi and JPMorgan acted as joint arrangers, derivatives swap counterparties and seniors funders on the deal. Both US banks purchased the class-A loan notes, which had been structured to an A international credit rating.

The landmark transaction was the first securitisation of its kind to incorporate offshore funding with an onshore South African-based special purpose vehicle. As a result, it required a specially designed cross-currency hedging mechanism. 

FirstRand’s investment banking arm, Rand Merchant Bank, collaborated closely with Citi and JPMorgan to set up and execute the requisite cross-currency hedges. Citi also acted as agency and trust provider for the transaction. 

With no precedent to work from, getting this innovative securitisation structure across the line required close coordination and collaboration between all banks involved. 

It builds on FirstRand’s reputation as a trailblazer in South Africa’s securitisation market. In 2000 it launched the country’s first public securitisation, a future flow deal backed by credit card vouchers. Two years later it issued the country’s first synthetic collateralised loan obligation.


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