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African Debt Capital Markets Resilient in Face of Growth Challenges

Debt capital markets in Africa remain resilient, displaying innovation in response to challenging regional and global environments. A review of the continent’s activity in debt capital markets reveals continued growth in issuance, including the evolution of new asset classes. These positive trends speak well to both the resilience and future growth prospects of Africa’s debt capital markets.


Debt capital markets across Africa’s sub-regions have remained robust despite the macroeconomic and political challenges presented, “indicating their growing maturity and depth – along with their ability to develop solutions in the face of volatility and change,” says Zoya Sisulu, Head, Debt Capital Markets South Africa, at Standard Bank – parent of Stanbic Bank Botswana. 


In Kenya, for example, structural challenges, including two banks placed under statutory management in 2016, saw investors move out of corporate bonds to the perceived safety of government paper and tier one banks. Similarly, in response to local growth concerns and increased political uncertainty in South Africa, issuance in the country’s debt capital markets was largely focused on high quality deals on well-known credit, given the increased risk aversion.


As sentiment improved in the course of the year, liquidity increased significantly and even saw some compression in spreads. The depth of the South African market also attracted a number of non-South African domiciled issuers seeking to access the local bond market through inward listings. These included institutions such as the International Finance Corporation raising ZAR bonds for local project funding and the Republic of Namibia raising a sovereign ZAR-denominated bond for ongoing deployment in the country’s infrastructure development programme.


In West Africa, Nigeria’s debt capital markets were characterised by volatility driven by increased inflation, high interest rates and low liquidity arising from a drop in global oil prices and depreciation of the Naira. In response, the value of bonds issued in Nigeria in 2016 dropped by 20% – to US$2.9 billion, compared with US$3.7 billion in 2015.


A significant corporate issuance, in one of Africa’s largest economies on the other hand, saw Stanbic IBTC Capital Limited assist Lafarge Africa PLC to raise NGN 60 billion (US$190 million) in the Nigerian debt capital markets. This was a landmark issue in Nigeria as it represents, “the largest bond issuance by a corporate in the country – successfully raised in a particularly challenging liquidity and interest rate environment,” says Kobby Bentsi-Enchill, Standard Bank’s Head of Debt Capital Markets for West Africa.


Despite pervasive macro challenges, “Africa’s smaller more diversified economies continued to show an increase in corporate issuance,” says Ms Sisulu. For example, Tanzania’s National Microfinance Bank Plc issued a US$19 million three-year senior and unsecured fixed rate retail bond taking advantage of the substantial liquidity with retail investors. In Namibia and Zambia, issuance continued to be driven by the financial sector.

 

A highlight in the Namibian market was the International Finance Corporation’s debut bond, pricing at par to the government curve. Also, despite a volatile interest rate environment in Mozambique the US$ 4.4 million Bayport transaction marked the first corporate issuance in the country.
Changing regulation was also a common theme across the African debt capital markets landscape this year, and will continue to define responses going forward.


Opportunities around interest rate capping, for example, could see innovation in Kenya’s debt capital markets as corporates seek to hold loans in bond format. This is especially so in Kenya’s financial services sector where, “banks will need to get smarter about increasing returns on their loan books and repackaging structures will likely get them rate flexibility that is required to properly assign risk to counterparties,” says Wegoki Mugeni, Head, Debt Capital Markets East Africa for Standard Bank.  Regulatory changes around capital requirements in Uganda and Tanzania are also expected to drive opportunity in these two markets.


Similarly, in South Africa, banks have been key drivers of issuance volumes in response to the implementation of Basel III regulations, much of this historically focused on Senior and Tier ll funding. Further developments in this sector include Alternative Tier 1 Capital. Alternative Tier 1 notes are a key instrument in regulators' post-crisis bail-out regime. They seek to impose principal losses on creditors during firm-level financial distress. “The idea is that this should happen outside the normal bankruptcy process, and, in theory, without recourse to the public purse,” explains Ms Sisulu.


In Nigeria, regulation has driven the growth of the country’s debt capital markets over the last decade. “Regulatory changes, including pension fund reforms, have seen significant growth in assets under management as pension funds benefit from increased participation from pension fund contributors,” says Mr Bentsi-Enchill.


Specifically, in 2012, the Federal Government of Nigeria exempted bonds from withholding tax on interest income, making investments in bonds more attractive. In addition, assets under management of pension funds increased from US$9.5 billion in 2012 to US$19 billion in September 2016. That said, corporate bond issuances in Nigeria still only accounted for just over 7% of total issuances in 2015 and 2016 with the Federal Government of Nigeria remaining the primary issuer of bonds.


Nigeria’s commercial paper market has grown significantly since the first commercial paper issuance by Stanbic IBTC Bank PLC in 2012. Cumulative commercial paper issuance from 2012 to September 2016 amounted to over US$20 billion, with a number of corporates accessing the commercial paper market for short term funding this year.


Looking forward to 2017, government and banks are expected to be the biggest drivers of new debt capital market activity in Africa going forward. “In Kenya, for example, Standard Bank expects requirements for longer term, local currency denominated financing structures for power, infrastructure and utilities projects to drive growth in the capital markets,” says Ms Mugeni.  “Additionally, market changes such as introduction of over the counter trading for fixed income securities should increase secondary market liquidity something which has been conspicuously absent for corporate paper.”


Similarly, in Uganda, Standard Bank expects increased debt capital market activity as private sector investors look to raise longer term funding to service government infrastructure investment. Over the longer term, Standard Bank also expects infrastructure build programmes, as well as major capital projects in water and energy, to drive innovation and activity in South Africa’s capital markets. “There has been much discussion in the market around facilitating the development of the project bond market given the massive infrastructure requirement in the country – particularly in the water and renewable energy sectors,” says Ms Sisulu.


In summary, Africa’s rapidly growing and deepening debt capital markets have met the challenges of 2016 with both resilience and innovation. “Standard Bank remains optimistic that Africa’s debt capital markets will continue to deliver the capital that drives Africa’s growth,” says Ms Sisulu.

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The  Bulb World CEO selected for Africa’s prestigious award

22nd July 2021

The Bulb World Chief Executive Officer (CEO) and entrepreneur, Ketshephaone Jacob has been selected as a 2021 Top 50 Africa’s Business Hero.

Jacob was chosen from a pool of 12,000 applicants – many of whom are highly-skilled and accomplished entrepreneurs.

Africa’s Business Hero, sponsored by technology entrepreneur, Jack Ma, aims to identify, support and inspire the next generation of African entrepreneurs who are making a difference in their local communities, working to solve the most pressing problems, and building a more sustainable and inclusive economy for the future.

The initiative is as inclusive as possible and applications were open in English and French to entrepreneurs from all African countries, all sectors, and all ages who operate businesses formally registered and headquartered in an African country, and that have a 3 year-track record.

Every year, finalists are selected to compete in the ABH finale pitch competition and participate in a TV Show that will be broadcast online and across the continent.

The finalists will compete for a share of US $1.5 million in grant money.

The Bulb World, is home grown LED light manufacturing company, which was partly funded by Citizen Entrepreneurial Development Agency (CEDA) at the tune of P4 million, to manufacture LED lighting bulbs for both commercial and residential use in 2017.

The Bulb World operate from the Special Economic Zone of Selibe Phikwe. Early this year, The BulB World announced its expansion to South Africa, setting in motion its ambitious Africa expansion plan.

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Mining production down 12 % IN Q1 2021

14th July 2021

During the first quarter of 2021, production in Botswana’s economic nucleus- the mining sector contracted by 12 percent. This is according to Mining Production Index released by Statistics Botswana this week.

The country’s central data body revealed that Index of Mining production stood at 74.4 during the first quarter of 2021, showing a negative year on-year growth of 12.0 percent, from 84.6 registered during the first quarter of 2020.

The main contributor to the decline in mining production came from the Diamonds sector, which contributed negative 11.7 percentage points. Soda Ash was the only positive contributor in the mining production, contributing 0.1 of a percentage point. However Soda Ash’s contribution was insignificant to offset the negative contribution made by Diamonds.

The quarter-on-quarter analysis by Statistics Botswana experts shows an increase of 16.3 percent from the index of 64.0 during the fourth quarter of 2020 to 74.4 observed during the period under review.

Diamond production decreased by 12.1 percent during the first quarter of 2021 compared to the same quarter of the previous year. The decrease was as a result of planned strategy to align production with weaker trading conditions mostly linked to Covid-19 protocols restrictions.

Botswana’s diamond sector is underpinned by Debswana, the country’s flagship rough producer- a 50-50 joint venture between government and global mining giant De Beers Group. The other producer is Canadian based Lucara Diamond Corp through its wholly owned Karowe Mine which is a relatively small but significant production that has made a name for itself worldwide with rare diamond recoveries of unprecedented carat size.

On the other hand, quarter-on quarter analysis shows that production has improved, registering a positive growth of 17.5 percent during the first quarter of 2021 compared to the preceding quarter – 2020 Q4.

Though production was significantly lower in the first quarter, the two producers ended Q2 with rare diamond recoveries. Debswana early last month found the world’s third largest gem diamond – weighing 1098 carat at Jwaneng Mine, its flagship gem quality diamonds producer, also regarded the world’s richest diamond mine.

A week later Lucara  announced its second biggest recovery, the 1174 carat clivage near-gem dug from its Karowe Mine. The diamond is the world third in carat size after the plus-3000 carat Cullinan found in South Africa back in 1905 and the 1758 carat Sewelo unearthed at its Karowe mine in 2019. Debswana and Lucara are investing billions of pulas in underground mining projects to extend the life of its mines, Jwaneng & Karowe respectively.

In terms of Gold which is produced at Mupani mine near Botswana’s second city of Francistown output decreased by 17.9 percent during the first quarter of 2021 compared to the same quarter of the previous year.

Similarly, quarter-on-quarter analysis reflects that production decreased by 21.4 percent during the first quarter of 2021, compared to the preceding quarter. The decrease was as a result of the deteriorating lifespan of the mine as well as the impact of COVID-19 which slowed down the mining activities.

Soda Ash production increased by 11.1 percent during the first quarter of 2021 compared to the same quarter of the previous year. In terms of quarter-on-quarter Soda Ash production also showed an increase, picking up by 2.1 percent during the period under review. The increase in production is attributable to the effectiveness of the plant following refurbishment which occurred in the third quarter of 2020.

Salt production decreased by 34.0 percent during the first quarter of 2021, compared to the same quarter of the previous year. Similarly, the quarter-on-quarter analysis shows that salt production registered a decrease of 32.9 percent during the period under review. Both salt and Sodash are produced by partly government owned Botswana Ash (BotsAsh) operating from Sowa town near Makgadikgadi pans.

Coal production decreased by 11.2 percent during the first quarter of 2021, compared to the corresponding quarter of the previous year. The decrease was attributed to the reduced demand from Morupule B Power Station following the remedial works being undertaken, as one boiler was in operation during the period under review.

Although production fell, Statistics Botswana says there was no shortfall in supply of coal due to stockpiling. On the other hand, the quarter-on-quarter comparison shows that coal production increased by 20.4 percent compared to the preceding quarter.

Botswana’s flagship coal producer is Morupule Coal Mine; a wholly state owned mining company located in Palapye producing primarily for Botswana Power Corporation (BPC)’s power generation plants Morupule A & B.

The other coal producer is Botswana Stock Exchange listed Minergy which operates a 390 MT Coal Resource mine in Masama near Media in the southwestern edge of the Mmamabula Coalfields.

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Gov’t awards mining licence for Gantsi Copper Mine

14th July 2021
Moagi

Department of Mines in the Ministry of Mineral Resources, Green Technology & Energy Security has awarded mining licence to Tshukudu Metals-a subsidiary of Aussie firm Sandfire Resources ,giving the company a green light to start piecing the ground at its Motheo Copper Project near Gantsi.

Lefoko Moagi, minister in charge of mineral resources in Botswana confirmed to weekendpost on Tuesday. Minister Moagi revealed that “the licence has been approved , but Sandfire Resources as a listed company will report to its shareholders and investors then make an official public statement” he said.

Based on a forecast copper price of US$3.16/lb (reflecting current long-term consensus pricing) the Base Case 3.2Mtpa – Ghantsi copper project is forecast to generate US$664 million (over P7 billion) in pre-tax free cash-flow and US$987 million (over P10 billion) in EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation), at a forecast all-in sustaining cost of US$1.76/lb over its first 10 years of operations.

In December 2020, the Board of Sandfire Resources approved the commercial development of the Motheo Copper Mine located in the Kalahari Copper Belt in Botswana, marking a key step in its transformation into a global, diversified, and sustainable mining company.

Tshukudu Metals Botswana (Pty) Limited (Tshukudu) a 100% owned subsidiary will be the owner and operator of the Motheo Copper Mine which is scheduled to produce up to 30,000 tonnes per annum of copper in concentrate over a 12 year mine life.TMB is targeting development of its Motheo Copper Mine in 2021 and 2022, with its first production in 2023.

GOVERNMENT NOT TAKING UP 15 % STAKE ON OFFER

Beginning of this year presentations were made to the Department of Mines as part of the Mining Licence approval process and to the Ghanzi Regional Council, additional information was requested by Department of Mines in April and was duly supplied by the company.

As part of the Mining Licence approval process, the Government of Botswana has a right to acquire up to a 15% fully contributing interest in all mining projects locally. Quizzed on whether government through Mineral Development Corporation Botswana (MDCB) would be taking up stake in the project Minister Moagi said, “No consideration is being made on that regard”.

“Government is not considering taking up a stake in the Ghantsi Copper Mine project, every opportunity is assessed on all risks, but Government makes money all the while from leases, taxes and royalties, remember if you take stake you are liable for liabilities of the project as well,” Moagi said.

MINING CONTRACT

Last month Sandfire announced that it has awarded over P5 billion worth mining contract to African Mining Services (AMS), a subsidiary of Perenti, to deliver the open cast operation.

The contract, which has an estimated value of US$496 million (over 5 billion), is the largest single operational contract for the new Motheo Project covering a period of 7 years and 3 months, with provision for a one-year extension.

The contract according to Sandfire Resources was awarded following a competitive 3-stage tender process which saw a number of key factors taken into consideration when selecting the preferred contractor.

These included Citizen Economic Empowerment, safety culture, equipment suitability and availability, commercial terms and identified improvement opportunities. Under the terms of the contract, AMS has agreed to form a 70:30 Joint Venture with a suitable local Botswana partner or partners.

The JV is expected to be finalized ahead of commencement of mining in early 2022. African Mining Services has been operating in Africa for over 30 years. AMS’ parent company, ASX listed diversified mining services group Perenti, already has a presence in Botswana through Barminco, their underground mining division, at the large-scale Khoemacau Copper Mine located 200km north-east of Motheo.

Last month Sandfire executives said the award of the open pit mining contract represents another key milestone in advancing the Motheo Project towards production, with all components of the contract in line with the key parameters outlined in the December 2020 Definitive Feasibility Study (DFS).

The company said full-scale construction of the US$279 million (over P 3 billion ) mine development is expected to commence immediately upon receipt of the Mining Licence, with mining scheduled to commence in early 2022 ahead of first production in early 2023. This week Sandfire Resources advertised over 10 positions in calling on applications from geologists, mining engineers and geotechnical engineers.

The Motheo mine has an initial mine life of 12.5 years based on production from the T3 pit. The initial development is expected to generate approximately 1,000 jobs during the construction phase and 600 direct full-time jobs during operations, with at least 95% of the total mine workforce expected to be made of up of Botswana citizens.

Later in the week Sandfire Resources announced in the company website that it has received the licence. Sandfire’s Managing Director and CEO, Mr Karl Simich, said the award of the Mining Licence represented a major milestone that would see a significant increase in construction and development activities on site.

“We are absolutely delighted to now be in a position to move to full-scale construction at Motheo, with our construction crews expected to mobilise to site over the next few days. I would like to thank the Government of Botswana for their support throughout the approvals process, which will see Motheo come on-stream in 2023 as one of very few new copper mines commencing production globally.”

Simich said the project is expected to generate approximately 1,000 jobs during construction and 600 full-time jobs during operations, and represents the foundation for Sandfire’s long-term growth plans in Botswana.

“Our vision is that Motheo will form the centre of a new, long-life copper production hub in in the central portion of the world-class Kalahari Copper Belt, where we hold an extensive ground-holding spanning Botswana and Namibia,” he said.

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