Bonds: Corporate

Axian Telecom debut offering

Global co-ordinators: JPMorgan, Standard Bank, Société Générale 

Axian is an integrated African telecom operator active in Tanzania, Madagascar and Togo. In February 2022, it made its debut in international capital markets with a $420m SNC2 bond offering priced at 7.375% — the only high-yield corporate bond issued in Africa in 2022.

The offering enticed investors into these new jurisdictions, which were previously under-exposed on international bond markets. Despite the difficult market context, the issue generated a three-times oversubscribed commercial orderbook, following three days of virtual meetings that reached more than 90 individual institutional investors. High-quality buy-and-hold investors drove orderbook growth.

Development finance institutions (DFIs) anchored the transaction, representing 28% of allocations, a rare corporate offering seeing such a level of participation from leading DFIs including the International Finance Corporation, CDC (now British International Investment), Emerging Africa Infrastructure Fund and Germany’s DEG. With DFIs’ share fully allocatable, the bulk of the remainder (68%) was taken by asset managers. On the secondary market, the bond traded positively on the break, with investors keen to add to their allocations.

The bond was designed to refinance an important acquisition in Tanzania for which regulatory approvals had not yet been given. It led to the development of an innovative escrow structure that would have returned proceeds to investors had the deal not closed — a first-ever use of an escrow mechanism in such a deal in Africa.

Proceeds will also support Axian’s operations in its three markets, with a focus on developmental impact. The priorities are to: increase mobile and internet coverage in underserved areas; support financial inclusion through growing Axian’s mobile money business in Togo; and create jobs in local communities, with a particular focus on women.

Bonds: Sovereigns, supras and agencies  

South Africa’s $3bn bond issuance 

Bookrunners: Absa Bank, Deutsche Bank, FirstRand, HSBC, Nedbank CIB 

In April 2022, South Africa made its first international bond issuance in more than two and a half years — its longest hiatus from the public primary market since its 1991 debut, despite its reputation as one of the most active emerging market (EM) issuers. At the time of the offering, it was the largest EM sovereign transaction since Russia’s full invasion of Ukraine in February 2022. The issue also followed South Africa’s first Zoom-based global investor call.

The $3bn offering came in two tranches: a $1.4bn 10-year note and a $1.6bn 30-year note. Initial price talks (IPTs) put yields at 6.25% and 7.75% for the 10-year and 30-year tranches, respectively. Orderbooks grew strongly through the day, topping $3bn just before the US open, with the US market seeing demand more than double to $6.8bn; latecomer anchor orders saw books rise to $8.4bn.

With strong demand, pricing tightened and yields were set at 5.875% and 7.30% for the 10-year and 30-year notes, respectively. As a result, the orderbook ended at nearly $7bn (around 2.3 times oversubscribed), with $3.3bn allocated to the 10-year issue and $3.7bn to the 30-year leg. The latter was the largest pricing revision from IPTs in central Europe, Middle East and Africa in the year to date. Demand was dominated by asset managers, accounting for 72% of the 10-year leg and 74% of the 30-year tranche.

The National Treasury had been advised not to issue bonds in March, due to the volatility caused by the Russian invasion of Ukraine. The April issue was timely for South Africa, however, as the sovereign was among the last sub-Saharan African issuers able to price a deal in 2022, and it secured fixed-term funding ahead of the bulk of US interest rate rises.

Equities

Sasol’s $750m convertible bonds 

Lead managers: Bank of America, Citi, JPMorgan

Co-managers: Mizuho, MUFG, SMBC Nikko 

Sasol’s $750m issue priced on November 1, 2022 is the largest convertible bond offering from South Africa since 2016 and the largest optional convertible bond in Europe, the Middle East and Africa since September 2021.

Sasol is a South Africa-based global chemicals and energy company, and the country’s biggest fuel producer. It groups its activities into three categories: advanced materials, base and essential care chemicals, and performance solutions. The energy business operates an integrated value chain using feedstock from Sasol’s mining and gas operations, processed at three plants: Natref, Secunda and Sasolburg.

The five-year guaranteed senior unsecured convertible bond is US dollar-denominated, and priced with a coupon of 4.5%, payable semi-annually, and a conversion premium of 30% over the volume-weighted average price of Sasol’s ordinary shares on the Johannesburg Stock Exchange on the day.

The company was thus able to achieve a significant coupon discount over a straight debt issue, appreciably lowering its cost of capital and diversifying its funding sources. The offering launched pre-market open at 8am South African Standard Time, and books were covered within two hours of the offering’s launch and closed well oversubscribed at 3pm, with demand from international and domestic investors. The bonds are convertible either to new or existing ordinary Sasol shares, or cash, or a combination of the two.

The proceeds from the bond, which are due in 2027, will be deployed for refinancing of debt, among other general corporate purposes.

The convertible bonds may be redeemed at the option of each holder of the convertible bonds at the principal amount (plus accrued but unpaid interest) following the occurrence of a relevant event, a change of control or a de-listing event, according to the company.

Financial institutions group financing

African DFI debut bond issue 

Bookrunners: Afreximbank, Africa Finance Corp, Citi, Mashreqbank, Rand Merchant Bank, Sumitomo Mitsui Financial Group

Established in 1964, Bank of Industry (BOI) is Nigeria’s oldest and largest development finance institution (DFI). It focuses on developing the country’s industrial sector through financial and advisory support to enterprises of all sizes, particularly through low-cost, long-term financing. Its remit is aligned with Nigeria’s National Development Plan 2025 and Agenda 2050. The latter aims to lift 100 million Nigerians out of poverty in 10 years, sustain national development, and support regional and global strategic interests.

BOI achieved a landmark deal in 2022 with its first bond issue — also the first euro-denominated bond issue to be guaranteed by the Federal Government of Nigeria, underlining its importance to the country as a whole. The bank aims to use the funds raised to assist small, medium-sized and large firms with financial assistance and advisory services, to boost business growth in Nigeria.

The €700m 114A/RegS senior participation notes were successfully launched at a coupon of 7.5% in an intra-day issue, matching initial price talks. The deal had been publicly announced the previous week, followed by the BOI hosting a three-day global virtual roadshow, including a global investor call, as well as one-on-one and small-scale investor calls with potential buyers across the world, including Europe, the US and the Middle East.

Investor appetite was reflected in a 1.5-times oversubscription rate, with more than 100 active accounts. Some 75% of investor allocation for the issue, on the London Stock Exchange, went to asset managers; 56% to UK-based investors, 17% to the US, and 16% to sub-Saharan Africa and the Middle East and north Africa.

Infrastructure and project finance

Scatec’s R15.5bn renewables projects 

Bookrunner: Standard Bank

Participants: British International Investment, Momentum Metropolitan, Old Mutual, Standard Chartered Bank,  Industrial Development Corp of South Africa

‘Load shedding’ has become an all-too-familiar term for South Africans in recent years. It refers to the rolling blackouts imposed to ease pressure on the power system caused by a mismatch between high demand and limited supply.

A R15.5bn ($860m) project financing deal raised by Norwegian renewable energy systems company Scatec aims to reduce the impact of load shedding during electricity shortages by boosting renewable energy and battery energy storage capacity to reduce the country’s dependence on coal.

Scatec was awarded three of 11 projects under the Risk Mitigation Independent Power Producer Procurement Programme launched by South Africa’s Department of Mineral Resources and Energy. The three projects, which are located in the Northern Cape, have a cumulative capacity of 540 megawatts (MW) of photovoltaic solar power and 225MW/1.12 gigawatt hours of battery energy storage and are set to be the first battery storage projects in Africa.

The lead arrangers of the project finance were Standard Bank and British International Investment (BII), the UK government’s development finance institution, which has a long-standing relationship with Scatec. Standard Bank was the sole underwriter of the debt funding for the project, which consists of R12.3bn of senior debt and R3.2bn of ancillary facilities.

Together with other lenders who joined after the financial close, Standard Bank and BII have provided senior debt denominated in South African rand to avoid a foreign exchange mismatch between funding and the projects revenues.

Standard Bank also worked with Scatec to structure a currency hedging mechanism, since part of the construction costs will be denominated in US dollars. This will be executed as one of the bank’s first environmental, social and governance-linked derivatives. The bank has also implemented interest rate hedging for the entire debt during construction — and a portion during operation — to further reduce the projects’ risk profile.

Islamic finance

Elsewedy’s E£3bn revolving mudaraba 

Sole bookrunner and financial adviser: Abu Dhabi Islamic Capital

Initial mandated lead arrangers: Abu Dhabi Islamic Bank Egypt, Al Ahli Bank of Kuwait Egypt, Al Baraka Bank Egypt, Banque Misr

Mandated lead arrangers: Agriculture Bank of Egypt, Egyptian Arab Land Bank, Industrial Development Bank, MIDBank

Founded in 1938, Cairo-listed Elsewedy Electric operates five business lines across Africa, the Middle East and Africa: wire, cable and accessories; electrical products; engineering and construction; digital solutions; and infrastructure investments. The company became Egypt’s first specialist electric cable distributor in 1960 and its first private manufacturer of cables in 1984.

With 48 international offices, Elsewedy exports to more than 110 countries and aims to expand in the coming three decades and beyond, both by opening new factories and acquiring other businesses across the value chain at home and abroad.

In September 2022, Elsewedy Electric issued its first ever sharia-complaint multi-purpose facility, in the form of a revolving mudaraba worth up to E£3bn ($97m), to support its efforts to diversify and open new export markets in North America and Europe. It was the first ever syndicated facility for the Elsewedy Group.

The deal was one of very few executed in Egypt during a tough year in which the economy was buffeted by multiple devaluations of the Egyptian pound, foreign currency scarcity and the impact of the war in Ukraine. Manufacturing was further affected by the central bank’s cancellation of its subsidised interest rate scheme for the industrial sector. Cost of funding and finance rose during the period between the deal’s inception and the final signing of the facility agreement.

Despite these headwinds, the deal was oversubscribed. Elsewedy aimed to gather leading sharia-compliant financial institutions to deliver the issuance.

Confidence may have been buoyed by the issuer’s strong financial results, with the company announcing 53% revenue growth to reach a record E£62.6bn in the first nine months of 2022, and a 34.8% year-on-year rise in net profit after minority interest.

High-yield and leveraged finance

Upsizing MetroFibre Networx’s debt facilities 

Bookrunner: Standard Bank

Participants: Investec, Sanlam 

South Africa has seen a huge boom in fibre demand in recent years, with connections rising 4200% in the seven years to 2022, according to local media reports. There is intense competition between local fibre network providers to meet this demand, particularly in underserved markets such as townships and more remote regions.

Diversified network operator MetroFibre Networx aspires to be a first mover in this market, laying its infrastructure before competitors and investing in new locations across South Africa. In July 2022, it secured a five-year R5bn (£280m) deal to refinance and upsize its debt facilities to finance its expansionary capital expenditure programme.

Standard Bank, an existing lender to the company, increased its share of funding from 40% to 66%, with 27% contributed by Investec Bank and 7% by Sanlam Specialised Finance. The deal team focused on structuring a debt deal that fulfilled internal risk requirements, while providing MetroFibre with the resources to implement its growth strategy in a sustainable manner.

The company, which is one of the top-three fibre providers in South Africa with an existing network passing more than 440,000 homes in six provinces, aims to reach a further 500,000 homes in underserviced communities across the country by 2025. MetroFibre says that this will fulfil both business goals and social development objectives by helping bridge the digital divide by expanding critical infrastructure and enhancing internet penetration.

The company already owns and manages South Africa’s carrier Ethernet 3.0 open-access fibre network in six out of the country’s nine provinces: Gauteng, Northwest, Mpumalanga, Western Cape, Eastern Cape, and KwaZulu-Natal. Its customers include internet service providers and resellers, as well as residential and business consumers. Its shareholders include South Africa-based African Infrastructure Investment Managers and French government-backed fund STOA Infra & Energy.

Loans  

Fiber Misr’s $259.2m syndicated facility 

Mandated lead arrangers: Banque Misr, Commercial International Bank 

Sometimes, deals need to be executed quickly – perhaps to extend a lifeline to a struggling company, take advantage of a financial window or deliver a project on a tight timeline. The latter was the case in the $259.2m syndicated facility raised by Egypt’s Fiber Misr for Telecommunications & Information Technology (Benya Technologies) in November 2022. The agreement was signed on November 7 and financial close announced three days later.

The deal supports Fiber Misr’s delivery of its $275m contract to build, supply, install and commission Egypt’s Disaster Recovery Centre. The financing was needed rapidly due to urgent import letters of credit requested for issuance in the project to alleviate any increase in prices agreed between Fiber Misr and the vendors, and to avoid a negative impact on the project’s budget and commercial viability from price fluctuations or delay in the project’s delivery.

The deal featured a multi-purpose syndicated medium-term facility of $259.2m (and/or the Egyptian pound equivalent). The funding is available in the form of an import letter of credit, a short-term facility and a bonding facility.

The participating banks – Banque Misr and Commercial International Bank on the Egyptian lending side – fully underwrote the syndicated facility and supplied the funds needed to meet Fiber Misr’s funding requirements for the project. The underwriters have indicated that they will hold their shares in the syndicated facility to help maintain their strategic partnership with the client.

Fibre Misr has a track record of delivering major information and communications technology (ICT) infrastructure projects. It is a subsidiary of Benya Group, a leading Egyptian ICT infrastructure and digital services provider operating across the Middle East and Africa.

M&A  

Allianz’s R33bn joint venture with Sanlam 

Financial adviser to Allianz: Standard Bank

Financial adviser to Sanlam: JPMorgan 

Creating the largest pan-African insurance player, operating in 27 countries across the continent, the R33bn ($1.8bn) joint venture (JV) between Allianz and Sanlam signed in February 2022 could have a significant impact not just on the two partners, but the industry as a whole. Standard Bank, the sole financial adviser to Allianz on the deal, says that it will produce “the premier pan-African non-banking financial services entity”.

It brings Allianz, the DAX-listed European insurer and the world’s third-largest, together with Sanlam, which is listed on the Johannesburg, A2X and Namibian stock exchanges, with an initial 60:40 shareholding between Sanlam and Allianz. The combined entity is expected to rank in the top three insurers in most of the markets in which it operates, including 12 countries in which both Allianz and Sanlam have a presence.

The deal is a complex one, subject to a range of conditions including approval for both companies from competition and regulatory bodies in each of the jurisdictions. The JV company will also need to follow listing rules in countries in which subsidiaries are listed.

Due to the need for confidentiality, filing documents in the virtual data room (VDR) for the deal did not start until the memorandum of understanding (MoU) was signed; the VDR was populated in less than two weeks, and involved more than 200 entities in all 27 countries and documents in various languages including English, French and Arabic, which needed translating.

The agreement envisages multiple steps and a range of related smaller deals, including Allianz’s acquisition of Sanlam’s 10% stake in South African insurer San JV for R2bn. Sanlam’s Namibia operations will join the JV company at a later date, with Allianz having the option to increase its stake to 49% at the same time.

Restructuring

BUA Foods’s restructuring and listing 

Financial adviser to BUA Foods: Rand Merchant Bank 

Nigeria is a large and growing market for food and fast-moving consumer goods companies, and home to Africa’s largest population by a huge margin — at 220 million people, this is almost twice the size of the next largest, Ethiopia.

The market has been driving the growth of the food businesses of conglomerate BUA Group, which is owned by Abdul Samad Rabiu, one of Africa’s richest men. In January 2022, the newly constituted BUA Foods debuted on the Nigerian Exchange, following the restructuring of the business. BUA Foods was formed two months previously by the combination of several BUA subsidiaries in the food sector: BUA Sugar, IRS Pasta, BUA Rice, BUA Oil Mills and IRS Flour Mills.

The new company’s operations are organised into five business divisions: flour, sugar, rice, pasta, and edible oils. The merger seeks to capitalise on substantial cost savings and improved operational efficiency.

BUA Foods aims to use the transaction for its expansion to meet growing demand across the agriculture and food-processing value chain in Africa, thus strengthening its position in Nigeria and capitalising on advantages created by the African Continental Free Trade Agreement, which was established in 2018.

BUA Foods listed its total issued share capital of 18 billion shares at N40 ($0.086) apiece, taking the total value to N720bn ($1.55bn). At the time of writing (April 2023), the price had soared to N102 per share following strong investor demand.

Rand Merchant Bank advised BUA Foods on the two-phase transaction, including managing multiple regulatory jurisdictions. The transaction was completed in eight months, a record for this sort of restructuring and initial public offering deal.

Securitisation  

SA Home Loans’ Thekwini Fund 18 

Sole arranger: Standard Bank 

Since its foundation in 1999, South African mortgage finance provider SA Home Loans has raised just under R75bn ($4.2bn) through public securitisations, with 18 under the Thekwini Fund programme raising R35.3bn between July 2011 and November 2022. Thekwini 18 was the second Thekwini issue in 2022 and came to the market via a R1.5bn initial issue in September and a R1.7bn tap issue in November, with further issues expected in 2023 to reach the programme limit of R5bn.

Bids for the initial issue came in at just under R3.1bn, more than twice the target volume of R1.2bn, allowing SA Home Loans to increase the offering to R1.5bn of new funding. With only R50m of bids outside price guidance, the company could theoretically have raised the issue by significantly more, but bids outstripped available assets. SA Home Loans was able to use the strong bidding to tighten spreads across the notes, leading to a more favourable weighted average cost of capital.

The tap issue received R2.8m of bids, 1.65-times the targeted volume of R1.5bn, enabling the issuer to boost the offering to a total of R1.7bn — all of which was placed with domestic institutional investors. Again, SA Home Loans was able to tighten spreads due to the strong bidding.

The issuances were executed through Standard Bank of South Africa’s CreditConnect bond market platform, a digital system that allows investors and issuers to engage throughout the deal process. SA Home Loans has also honed the process of Thekwini issuances to respond to market perceptions that securitisation programmes generally are complex, with each structure having its own specific features, making analysis more resource-intensive and expensive.

The issuer simplified and standardised the Thekwini structure, allowing investors to focus on credit risk assessment rather than complex structural issues.

Sustainable finance

Barloworld’s gender-linked bond 

Sole lead arranger and sustainability adviser: Rand Merchant Bank 

With Africa’s first-ever gender-linked bond (GLB), South African industrial company Barloworld broke important new ground in August 2022. The R1.1bn ($61m) issue, in three-year and five-year tranches, will help finance the company’s female empowerment initiatives, and has gender-specific key performance indicators (KPIs) that will affect pricing as they are (or are not) achieved.

There are two KPIs: gender diversity in senior leadership, with 50% of positions held by women; and increasing the proportion of black-women-owned businesses in Barloworld’s supply chain. Barloworld executives have said the issue will allow investors to hold the company to account on its performance from a gender perspective.

Rand Merchant Bank (RMB) acted as sole lead arranger, sustainability adviser and coordinator, having seen the opportunity for a local bond offering, given the growing investor appetite for sustainable debt that promotes positive social outcomes. The bank worked with Barloworld to construct a GLB framework that clearly identifies the strategic importance of gender diversity to the company and enables it to issue similar instruments in the future.

RMB also worked with an anchor investor to align the deal structure with the investor’s specific social commitments, including gender inclusion and improved reporting disclosures. The investor agreed to bid up to 50% of Barloworld’s target. The issue priced “competitively” against Barloworld’s traditional bonds, according to RMB.

The bond was issued on the Johannesburg Stock Exchange’s Sustainability Segment, taking its market capitalisation to more than R26.2bn through nearly 50 different sustainability instruments.

The exchange and the issuer hope that the Barloworld GLB will catalyse further similar issues across Africa and beyond, as well as promoting greater transparency on gender metrics and clearer commitments to gender diversity in other companies. Barloworld has been approached by the Luxembourg Stock Exchange with a view to launching a second GLB for European investors.