Municipal Bonds Planned by Dar es Salaam to Deepen Debt Market

Feb. 10 (Bloomberg) -- Tanzania’s stock exchange said it’s encouraging municipalities to sell bonds as the bourse of East Africa’s second-biggest economy seeks to attract listings and boost trading volumes.

The Dar es Salaam Stock Exchange is working with the nation’s regulator to develop the debt market, improve liquidity and make the bourse a “key focus for long-term capital raising,” Chief Executive Officer Moremi Marwa said in an interview Feb. 7. The exchange met with officials from Kiondoni, Ilala and Temeke, which make up the commercial capital of Dar es Salaam, to issue notes, he said.

More than 70 percent of Dar es Salaam’s 4.4 million residents live in informal, unplanned settlements that have inadequate infrastructure and services and more than half of them live on about $1 a day, according to Start International, a Washington-based research organization. The city’s population is expanding by about 8 percent a year, one of the fastest growth rates in sub-Saharan Africa.

Local governments may begin financing capital expenditure through municipal bonds from next year, said Marwa, who began his tenure as CEO of the bourse on May 20. Dar es Salaam’s three councils may either issue debt directly or consider establishing “special-purpose vehicles” that will package the securities to overcome “legal and governance challenges,” he said, without elaborating.

Gas Reserves

Tanzania ranks as Africa’s fourth-biggest gold producer and together with bordering Mozambique has natural-gas reserves that could supply the global market for a decade. The Dar es Salaam Stock Exchange has 17 companies listed on its main All Share Index and one on its Enterprise Growth Market, or EGM, which targets smaller companies. Two companies are expected to list on the EGM this year, including Mwanza Community Bank and Swala Energy Ltd.’s Tanzania unit, Marwa said.

The bourse is engaging the government about selling the state’s stake in at least 10 companies that have been earmarked for offloading, including Mbeya Cement Co., which is partly owned by Paris-based Lafarge SA, the domestic unit of India’s Bharti Airtel Ltd. and Mtibwa Sugar Estates Ltd., Marwa said. He didn’t provide further details.

The bourse has a market capitalization of 16.6 trillion shillings ($10 billion), according to its website. It’s running campaigns on radio and television, in newspapers and on social media to motivate Tanzanians to use the stock exchange, which along with doubling trading times to four hours a day and reducing settlement periods, helped fuel a fivefold increase in trading volumes to 252 billion shillings last year, Marwa said.

Market Gains

The All Share Index advanced 26 percent last year, ranking the bourse as sub-Saharan Africa’s fifth-best performer, according to data compiled by Bloomberg.

Tanzania’s government first announced plans to begin selling municipal bonds in 2012, when it said it would raise 605 billion shillings to partly finance the 11.6 trillion-shilling Kigamboni project in Temeke, according to East African Business Week, a Kampala-based publication. The project involves programs including the construction of at least 15,000 residential houses.

South Africa and Nigeria are the only countries in sub-Saharan Africa where municipalities have raised funding in the debt market, with Zambia set to become the third when its capital, Lusaka, offers bonds later this year.

The Nigerian commercial capital of Lagos, sub-Saharan Africa’s biggest city, sold a record 87.5 billion naira ($533 million) of seven-year debt in November with an annual coupon of 13.5 percent. Johannesburg, South Africa’s largest city, plans to offer 1.3 billion rand ($117 million) of debt by June.

To contact the reporters on this story: Alawi Masare in Dar es Salaam at amasare@bloomberg.net; Paul Richardson in Nairobi at pmrichardson@bloomberg.net

To contact the editor responsible for this story: Antony Sguazzin at asguazzin@bloomberg.net