Tanzania is determined to float the planned $700 million bond in the international market by December.
The government is hoping to capitalise on investor appetite for African bond and stable markets that saw Kenya raise $2 billion in June at fairly affordable terms.
Investment Bank Dyer and Blair, which was one of the co-managers of Kenya’s Eurobond, said in a briefing to its investors that the Eurobond is set to be issued within the timelines announced by President Jakaya Kikwete early this year.
Dyer and Blair and top law firms — Anjarwalla & Khanna and Kaplan & Stratton — were part of a consortium of 15 transaction advisers in Kenya’s bond.
In April, President Kikwete said the bond would be launched any time between July this year and June 2015. However, he cautioned that the actual amount targeted and the timing would be purely determined by market conditions.
“We have been working on $700 million (for the Eurobond), we will see if we can go higher than that. We cannot say let’s borrow at any cost,” President Kikwete told the Reuters Africa Investment Summit in Dar es salaam.
Two months earlier, Tanzania Finance Permanent Secretary Servacius Likwelile said the transaction had been pushed forward after delays in getting a risk assessment from Citigroup slowed down the issuing of credit ratings. He suggested that up to $950 million would be raised.
READ: Dar lays the groundwork for Eurobond
The government had hoped to get the rating by December last year before variations arose on the agreed terms even after Citigroup had submitted the proposals. Neither Citigroup nor the Treasury could be reached to comment on when the rating would be secured.
The government had hoped to get the rating by December last year before variations arose on the agreed terms even after Citigroup had submitted the proposals. Neither Citigroup nor the Treasury could be reached to comment on when the rating would be secured.
Dr Joseph Massawe, Bank of Tanzania (BoT) director of economic research directed The EastAfrican to the Ministry of Finance for comments, saying the bank was not directly handling the issue.
A senior economics lecturer at the University of Dar es Salaam Dr Haji Semboja, said global standards required that the government make a decision to sell the bonds once a credit rating was secured.
Investor thirst
Analysts said the government’s determination to push through the debt by year end appears meant to capitalise on investor thirst for East African debt evident in the oversubscription of the Kenya Eurobond, corporate bonds and the initial public offering of Swala Oil and Gas at the Dar es Salaam Stock Exchange a month ago.
“The market is ready for another East African bond. The uptake of Kenya’s sovereign debt, corporate bonds and Swala Energy shares are good indications,” said Mercyline Wanjiru, a research analyst based in Nairobi.
On concerns that market conditions may change, making the bond expensive, Ms Wanjiru said this would depend on the credit rating.
“The yields on bonds are attractive. Tanzania does not have a previous rating and this will be the main factor,” she said.
Tanzania intends to fund the $1.23 billion Mtwara gas-pipeline project, a $10 billion port at Bagamoyo, new roads, railways and power plants with the funds raised. The projects are considered essential to reduce energy and food costs, the biggest contributors to inflation.
Power costs in Tanzania at $0.44 per kilowatt hour are more than three times the Africa average of $0.14 per kilowatt hour and six times the $0.07 average East Asia, African Development Bank data shows.
“Following discoveries of natural gas reserves, foreign investor interest is expected to increase. This could be attributed to the mounting up of the country’s prospects for becoming a net gas exporter in the next three years, which will place Tanzania as the next big economy in the region,” the Dyer and Blair note read.
Tanzania’s economy is expected to expand by 7.4 per cent this year, compared with 7.1 per cent last year. The GDP growth averaged 7.69 per cent in the five years to 2013, nearly two times Kenya’s 3.9 per cent over the same period.
Rwanda became the first East African nation to raise money through sovereign bonds during which $400 million was raised in April. After Kenya raised its own in June Uganda said it would not go that route for fear of falling into a debt trap.
Mr Likwelile told Bloomberg in February that the country hoped to get a credit rating of at least BB, placing it two grades above Kenya, which attracted a B+.
“If we look into the future for what Tanzania has, we think we deserve slightly higher,” Mr Likwelile said, adding that the total debt to gross domestic product ratio was sustainable at 24.8 per cent.
The country had a deficit of 6.2 per cent last year, above the 5.5 per cent agreed with the International Monetary Fund, which could worsen because of projected shortfalls in revenues and high infrastructure financing needs.
Tanzania’s was first expected to issue the Eurobond two years ago but this was dropped because of the global economic crisis.
The East African
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