Three years in preparation. Negotiations with the regional central bank and the authorities in eight different countries. A roadshow across eight financial centres, including some that had had little contact with global capital markets. The International Finance Corporation’s (IFC) CFA22 billion ($45 million) bond issue in December 2006 may not have been the largest in Africa in the past 12 months, but for sheer effort, it is hard to beat.
As the first foreign entity to issue debt in the West African Economic and Monetary Union (WAEMU), the IFC opened a new market, dubbed “kola” after a local nut once used as currency. BICI Bourse, a Cote d’Ivoire-based subsidiary of BNP Paribas, led the deal, assisted by six other banks across the region. “There were many things we were doing for the first time. We had never presented a bond in all eight WAEMU states before,” says Alban Kouakou, director of BICI Bourse. Local pension funds, insurance companies and banks bought into the bond in all WAEMU countries except Niger.
It was also the first time that a lead-manager in the CFA franc zone had not set a coupon before the roadshow, but had instead let investors guide the price. This helped ensure a 125% subscription rate. “Our intervention was aimed at bringing in international standards. We prepared the same comprehensive prospectus as in other markets, which can be used as a model by other issuers,” say Aida der Hovanessian, the IFC’s country manager for Senegal and several other WAEMU states.
Nina Shapiro, the IFC’s vice-president and treasurer, emphasizes that the objective was distinct from some of their other local currency activities. “This was a very different process from selling a local currency bond offshore to foreign investors looking to diversify. We wanted everyone to understand that we had no intention of dominating the market or becoming a regular borrower in it, that this was very much a development effort, to build the local investor base,” she tells Emerging Markets.
To maintain official support, the deal size was limited, and the funds were pre-allocated to four companies in different WAEMU countries. The hope is that this will stimulate more corporate issuance in a region where governments dominate the debt markets. However, der Hovanessian points out that the rules requiring a guarantee on corporate bonds have restricted activity. “To overcome this, we are looking at offering partial guarantees to local companies to help them issue,” she adds.
And the CFA franc market is not limited to WAEMU: the six countries of the Central African Monetary and Economic Community (Cemac) have the same exchange rate, but run a separate central bank issuing its own banknotes.
“The authorities requested that we sell some of the issue outside WAEMU, so there were investors from Cemac,” says Kouakou. Although there are separate bourses in the two zones, he notes that there is institutional cooperation across the two in the insurance sector, which could point the way for a larger, more integrated capital market.