AfDB Eyes Bonds From Nigeria to Zambia Amid Debt Selloff

The African Development Bank is planning to raise as much as $1.5 billion in local-currency bonds in Nigeria and Zambia to finance infrastructure projects as emerging-market bond yields rise on speculation the Federal Reserve will reduce economic stimulus.

The Tunis-based AfDB, which gives money to African governments for projects in areas such as roads, ports and energy, is completing the planned size of the medium-term note programs and is in talks with authorities in the two countries, Olivier Eweck, financial technical services manager in the bank’s treasury department, said in an interview from the Tunisian capital on July 5.

“Before the end of the month we would have made up our minds on the numbers,” he said. The Nigerian issues may be worth as much as $1 billion and the Zambian debt may reach the kwacha equivalent of $500 million.

African countries are stepping up sales of local and foreign debt, targeting funds for infrastructure on a continent where many lack regular access to services such as water and electricity. The offers come as borrowing costs increase amid speculation that the Fed will begin scaling back a U.S. debt-buying program that pumped cheap money into assets around the world, including emerging markets.

Yields Jump

Yields on emerging-market bonds rose six basis points, or 0.06 percentage point, to 5.86 percent yesterday, JPMorgan Chase & Co. data show. Borrowing costs on naira-denominated debt due January 2022 rose to a 10-month high of 14.73 percent on June 11, three weeks after Fed Chairman Ben S. Bernanke indicated stimulus may be scaled back.

Nigeria raised $1 billion of five-year and 10-year Eurobonds for power projects on July 2. The sale followed Rwanda’s $400 million issue in April, while Ghana and Kenya have announced plans to sell international debt in 2013.

Some investors will want to put money into frontier markets, “quantitative easing or no quantitative easing,” Razia Khan, head of African economic research at Standard Chartered Plc in London, said by phone yesterday, referring to the Fed’s asset-purchase program.

Sub-Saharan Africa is the world’s second-fastest growing region after emerging Asia, according to the International Monetary Fund. Countries need to spend about $93 billion a year on infrastructure in the next 10 years to boost growth and business productivity, the World Bank said on its website.

Local Currency

Senegal, which may sell its third Eurobond this year, is offering 50 billion CFA francs ($98 million) in a 10-year infrastructure bond until July 22. The term matches the AfDB’s debt sold in Uganda in May, where 12.5 billion shillings ($4.8 million) was offered as part of its 125 billion-shilling medium-term note program started last year.

The first tranche of local-currency debt in Nigeria may be the naira equivalent of $100 million and bonds in both Nigeria and Zambia will be offered “well before year-end,” said Eweck. AfDB wants the Nigerian program to continue for “several years at least,” he said.

“If a project is generating local currency it needs to be financed in local currency,” Eweck said. The naira strengthened less than 0.1 percent to 161.70 per dollar as of 3:01 p.m. in Lagos, paring its decline this year to 3.4 percent. Zambia’s kwacha gained 0.4 percent to 5.51 per dollar, lowering this year’s losses to 5.8 percent.

Multinational companies may follow AfDB in selling local-currency debt, Khan said.

“It isn’t just about raising the money that’s required for infrastructure development, but they’re also doing their bit for developing the local markets,” she said. “The whole idea is there is more liquidity in those debt markets as a result.”

The proceeds from the AfDB bonds will mainly go to funding private-industry power, road and rail projects, as well as financial companies, said Eweck.

The Zambian and Nigeria debt sales may be followed by similar programs in Kenya, Tanzania and Ghana next year, he said.

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