Eurobond issuance requires patience

Dar es Salaam. The assessment of Tanzania’s credit worthiness (credit rating) - that will guide the country on matters pertaining to borrowing from international markets – is at an advanced stage, the transaction advisor has said.

Citibank is satisfied with the process so far

Tanzania appointed Citibank three years ago with the intention that the bank should advise the East African nation on the issuance of the $700 million Eurobond.

The plan, which started almost four years ago, seeks to help Tanzania to generate funds to be used in financing infrastructure projects ranging from road building, expanding ports and increasing power generation.

It was rekindled last year when the government announced that it would source some Sh1.2 trillion (about $700 million) through external non-concessional borrowing to partly finance its Sh18.2 trillion 2013/2014 budget.

Speaking to reporters in Dar es Salaam last week, the Citibank Group chief executive officer responsible for Europe, Middle East and Africa, Mr James Cowles said that they were satisfied with the process of negotiation for credit rating that was very close to conclusion.

“Tanzania has shown commitment to execute the Eurobond. We in the Citigroup are optimistic that the international market window for Tanzania to access international capital will be opened soon…There is no need to rush for Eurobond,” said Mr Cowles.

The Citibank Tanzania Limited managing director, Mr Joseph Carasso echoed similar sentiments during an interview with BusinessWeek.

Mr Carasso said negotiations between the government and the Citibank on credit rating so Tanzania can borrow from international markets (including issuance of a Eurobond) were still going on, noting that both parties were optimistic that the issue will soon be successfully concluded.

“In that regard, we would comment that Citi is much honoured to have been mandated by the Government of Tanzania as their advisor and lead arrangers for obtaining a sovereign rating with the ultimate goal of accessing the international capital markets.

No timing or specific transaction has been agreed, and we will make relevant market announcements as and when appropriate,” he said.

Earlier this month, Treasury Permanent Secretary, Dr Servacius Likwelile was quoted in the media as saying Tanzania may delay its debut Eurobond until the 2014/2015 fiscal year after a delay in getting risk assessment from Citigroup.

As a result, he said, the country has not yet applied for any borrowing from international markets.

With delays in issuance of the Eurobond, which was first announced almost four years ago, Tanzania plans to offer as much as $950 million of Eurobonds in the 2014/15 financial year.

According to Dr Likwelile, the delay in obtaining the rating was caused by “slight variations on the agreed terms” which he said would be resolved soon.

“Citigroup has submitted proposals and I have urged my team not to restart the tendering process but negotiate so we agree and make progress,” Dr Likwelile was quoted as saying in the media recently.

Should Tanzania succeed in issuing the Eurobond in 2014/2015 financial year, it will join a growing list of African nations which have done the same as they seek funds to finance infrastructure projects needed to improve economic growth in the world’s poorest continent.

Tanzania needs multimillion US dollars to finance infrastructure projects, especially gas powered plants and building of new port at Bagamoyo, revamping of railway lines and the ports in Dar es Salaam, Mtwara and Tanga.

Improving transportation and electricity will help reduce energy and food costs, the biggest contributors to inflation, Dr Likwelile said.

Electricity costs an average of $0.44 per kilowatt hour in Tanzania, he said. That compares with an average of $0.14 per kilowatt hour for all of Africa and $0.07 in East Asia, according to African Development Bank data.

The government expects to obtain a credit rating of at least BB, said Dr Likwelile, placing the country on a par with countries including Hungary and Guatemala and two steps above Kenya.

According to ratings by Standard & Poor’s Financial Services LLC (S&P) - an American financial services company – a BB rating means that the country or any other type of obligator is less vulnerable in the near term than other lower-rated obligors.

However, such a country or any other obligator will be facing major ongoing uncertainties and exposure to adverse business, financial, or economic conditions, which could lead to their inadequate capacity to meet the financial commitments.

Economists say it was really wise for the country to conduct careful negotiations on credit rating instead of rushing to float Eurobonds.

“It is not bad to delay the process of accessing credits from international credits through credit rating negotiations because the objective of financing the planned infrastructure projects will ultimately be attained,” said Prof Humphrey Moshi of the University of Dar es Salaam