After seeing the slowest start to a year in their market since records began, African borrowers have been able to pull off some of 2012’s most successful emerging market deals. But while the deal drought has pushed bank lenders into strong credits, it will not last forever. Highly rated borrowers in the region thinking of raising debt should jump on the bandwagon quickly.
Standard Bank of South Africa only set out to raise $750m when it launched its three year deal back in March. But thanks to the lack of supply in the African loan market this year, lenders leapt at the chance for investment grade African exposure and the facility has ended up 96% oversubscribed. The borrower signed a $1.35bn transaction on Tuesday.
Standard Bank is an attractive prospect in itself — with its links to Chinese firms through lending to commodity plays in Africa. But it is not the only example of a deal in the region going well. Last week telecoms firm MTN Ghana scaled back both the dollar and cedi pieces of its $300m-equivalent loan, and there has been oversubscription on all but one of the African loans to have come in the second quarter of the year.
The pricing on offer in the region certainly makes lenders keen to pile into these deals — Standard Bank paid 200bp over Libor for its deal, 55bp more than the all-in margins of lower rated Turkish banks. But the success of these transactions is also testament to the lack of supply across the market. So far, the African market has only seen $2.65bn of loans signed in the second quarter of the year. Total volumes for the period are expected to be way down on 2011 ($8.63bn) and 2010 ($6.79bn).
Figures like these barely scratch the surface of international banks’ lending capacity, so borrowers should take advantage of the lull in volumes to come to market.
But they’ll have to be quick. Looming on the horizon is Ghana Cocobod’s third quarter deal, thought to be for around $1.5bn, depending on crop harvests (the loan is secured against cocoa export contracts). Not only that, but there is the annual round of trade financings due by September: they tend to fill a lot of banks’ West Africa risk allocation boxes.
Patience is no virtue here and waiting could prove to be the worst policy. Borrowers should get in while they can.