The Namibian government issued a debut US$500 million, 10-year Eurobond on 27 October and got a price of 5.75%, taking advantage of a lull in the capital markets turmoil. It was oversubscribed five and a half times.
Namibia’s 144A/RegS benchmark sovereign bond (“Namibia 21”) carries a coupon of 5.5% and is rated Baa3 by Moody’s and BBB- by Fitch, according to a Standard Bank announcement. Standard Bank Group (www.standardbank.com) and Barclays Capital (www.barcap.com) served as joint book-runners.
Since the issue, “Namibia 21s” have outperformed other emerging market (EM) bonds as there were several would-be buyers in the October issue who did not get what they wanted and so they took advantage of price dips to buy. According to Standard Bank last week: “Having started at a spread of 175 bps (1.75 percentage points) over an interpolated SA curve, Nam 21s are now only 122 bps over. Although part of the narrowing is the poor SA performance, which we believe is probably not justified, we still believe the spread will narrow further. We are very constructive on Namibia’s long-term structural transformation into an oil producer. Meanwhile, GDP growth was a robust 5.6% year on year in Q1 2011, fostering something of an upward revision in full-year estimates.”
Speculation on oil finds may still be premature, although exploration interest has grown strongly in the last year, with many companies moving closer to drilling. However, big new uranium mines are expected to add to Namibia’s exports from 2014.
Marketing the Namibian bond began on 27 September 2011 with a 5-day international road show of 2 teams of senior officials. Namibia’s Minister of Finance, Sara Kuugongelwa-Amadhila, and the Governor of the Bank of Namibia, Ipumbu Shiimi, led the delegations on investor meetings in Los Angeles, San Francisco, Boston, New York, Zurich, Geneva, Frankfurt, Munich and London. The roadshow highlighted economic fundamentals, such as a low government-debt-to-GDP ratio of 17% (at 1 September 2011) and real GDP growth rates of 6.6% in 2010 and forecasted at 5.8% for 2011.
According to the bank: “However, global market uncertainty and volatility caused primarily by the Eurozone debt crisis prompted Namibia to postpone a transaction until market volatility subsided and a potential resolution to the Eurozone crisis became more apparent.” It moved fast as sentiment changed: “A global market rally in risk assets following the conclusion of the EU leaders’ summit on 26 October provided strong market support and enabled the joint book-runners to announce the debut transaction. The joint book-runners released price guidance to the market on the morning of Thursday 27 October of a reoffer yield of between 5.75% and 6.00%. Investor interest built quickly across Europe, Asia and the US over the course of the morning and early afternoon. The investor response allowed the joint book-runners to launch the transaction at the tight end of price guidance by mid-afternoon on Thursday with a reoffer yield of 5.75%.”
Over 160 leading US, European and Asian institutional investors were on the order book. Fund managers and asset managers were over 50% of orders and the biggest proporation of the investors. UK accounts represented roughly 40% of orders, US 25%, continental Europe 30% and Asia about 5%.
Namibia’s is only the sixth benchmark sovereign bond to come to market from Sub-Saharan Africa (excluding South Africa) in the past few years, says the bank. Gabon and Ghana were first to issue sub-Saharan Africa Eurobonds in late 2007, followed by Senegal in 2009 and Nigeria in early 2011. In May this year, Senegal issued its second sovereign bond, but broke new ground by successfully concluding a joint bond issue and exchange. Standard Bank Group also facilitated a $250m 7-year loan to the Tanzanian government in June 2011, raised through regional and international financiers.
Peter Baillargeon of Standard Bank Group’s Debt Capital Markets Africa desk in London commented: “African economies urgently need to address the gaps in their infrastructure, especially in the areas such as energy and transport. This is where long-term sovereign bonds can play an integral role. Our involvement with a number of sovereign transactions demonstrates Standard Bank’s capabilities to successfully facilitate complicated transactions of this nature.
“We are proving that we have the required expertise and capacity to help African sovereigns as well as corporate entities to raise debt in international capital markets.”
Carl Piccolo, Head of International Debt Syndicate at Standard Bank in London, said: “Namibia’s debut Eurobond has been well received by international investors. This transaction provides Namibia with a very broad international investor base consisting of a number of the leading emerging market investors and is expected to serve as a liquid market benchmark to support international funding requirements for the government as well as the corporate sector going forward.”