PTA Bank bond got $650 million vs $300 million target

The eurobond recently issued by PTA Bank ( attracted bids for $650 million compared to a target of $300 million, according to a report in Kenya’s Business Daily ( Standard Bank and HSBC were the joint book-runners. The $300 mn bond started trading on the Luxembourg Stock Exchange on 9 November, according to a bank press release.
The report quotes Standard Bank Director of Investment Banking for Africa John Ngumi as saying the warm reception of the PTA Bank Eurobond in global markets is expected to set the tone for sovereign issuers such as the Kenyan Government, which shelved plans of a Eurobond of similar size in 2007 due to a volatile political environment and the onset of the global economic recession: “The deal is a milestone that opens up an important source of debt financing for African corporate entities and governments as they seek to diversify funding and accelerate economic development, especially infrastructure.”
He added that the transaction also illustrates the growing capacity of Africa-based financial institutions to place international financial transactions successfully.
Andrew Dell of HSBC said in a PTA Bank press release that the “deal was very well executed and dropped cleanly into the tight market window. This is a very important transaction for both the issuer and Africa more broadly. Development and trade finance has huge impact on the real economy and hence is a significant enabler of economic growth in and of itself.”
The successful issue followed a series of investor meetings in Zürich, Geneva, London, Hong Kong and Singapore.
Domestic interest rates are higher than international debt in hard currency and there are fears that more Government borrowing from local debt markets could send interest rates even higher. Eurobonds are listed on several stock exchanges including London and Luxemburg.
Eurobonds are typically denominated in international currencies, and the PTA Bank transaction was denominated in US dollars. The bond was priced to yield 7.125% and mature on 9 January 2016. It is the first part of PTA Bank’s new $ 1billion Euro Medium-Term Note (EMTN) whose proceeds will be used to support new trade and project finance lending in Eastern and Southern Africa. According to PTA Bank president Michael Gondwe, the EMTN programme will diversify the bank’s resource base and raise funding to meet financing requirements of small- and medium-size enterprises in the Eastern and Southern African region: “The international bond issue marks an important milestone in the bank’s resource mobilisation programme and is the first step in the implementation of a long-term strategy of engagement with international financial markets to access long term-capital.”
PTA Bank is formally known as the Eastern and Southern African Trade and Development Bank. It has 17 country members in Eastern Africa, plus China and the African Development Bank. It is rated Ba1 by rating agency Moodys and BB- by Fitch.
Aurelien Mali, Assistant Vice President in Moody’s Sovereign Risk Group, was quoted as saying: “PTA Bank’s rating reflects marked progress in recent years in strengthening governance and risk management policies and capabilities, which prevented NPLs from rising along with the recent expansion of the balance sheet,” says. “The ongoing improvements associated with PTA Bank’s strong liquidity have definitely strengthened the bank’s resilience to shocks.”
Moody’s, in its rating report, cites the Bank’s “proven resilience to shocks, which is supported by the Bank’s strong liquidity and its ongoing efforts to strengthen governance and risk management” is one of the key drivers of the positive rating. Moody’s also cites the strong shareholder support, particularly from China and AfDB, as evidenced by the unanimous decision of the Bank’s members to more than triple its subscribed capital base in 2007 as a major rationale for assigning the regional development financier a Ba1 rating.
Extracts from the Moody’s report say that earlier this decade, PTA Bank restructured its portfolio when gross Non-Performing Loans reached a peak of 60% of total assets. Since then, NPLs have continuously declined, dropping to 12% at the end of 2009, or 5% in net terms. The Moody’s report adds that the nominal value of NPLs has been stable for a number of years, and the bulk of the stock of impaired asset is a legacy from before the 2003 restructuring.
“Despite the financial crisis, the bank’s financial performance has been robust in terms of both return on assets (RoA) and on equity (RoE) in recent years. In 2009, RoA was 2.2% compared to the previous seven years’ average of 1.7%, illustrating the bank’s improving financial performance. RoE has been very strong, coming in at 10.1% in 2009. The bank also allowed a substantial allocation of net income to equity over the years, thereby strengthening the bank’s capital base,” says the report.
Moody’s says that the outlook for Bank’s rating “is currently stable, with the risks equally balanced. A continued rise in profitability alongside a decrease in both relative and nominal terms of NPLs “could lead to upwards rating pressure.”


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