Tanzania Delays Eurobond as Citigroup Risk Report Awaited

Tanzania said it postponed debut Eurobonds until the next fiscal year after a delay in getting a risk assessment by Citigroup Inc. slowed the issuing of credit ratings.

The government planned to sell $700 million of debt in the financial year through June. The assessment by Citigroup isn’t complete and Tanzania has yet to apply for a credit rating, Finance Ministry Permanent Secretary Servacius Likwelile said in a Feb. 7 interview in Dar es Salaam, the country’s commercial capital. The state plans to offer as much as $950 million of Eurobonds in the 2014-15 budget year if the sale doesn’t take place this fiscal year, he said.

The holdup in obtaining the rating, which the government had aimed to get by the end of 2013, was caused by “slight variations on the agreed terms, which we hope to resolve soon,” Likwelile said. “Citigroup has submitted proposals and I have urged my team not to restart the tendering process but negotiate so we agree and make progress.”

Simon Boughey, a spokesman at Citigroup, and Joseph Carasso, country manager at Citibank Tanzania, said they couldn’t immediately respond to e-mailed requests for comment.

Tanzania joins a growing list of African nations issuing dollar debt to finance infrastructure projects needed to bolster economic growth in the world’s poorest continent. Tanzania needs the funds for the $1.23 billion Mtwara gas-pipeline project, a $10 billion port at Bagamoyo and new roads and railways. The country is also building power plants.

Economic Stability

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

“Our infrastructure plan justifies what we are raising,” Likwelile said. “If we don’t invest in infrastructure we can’t expect any stability on the growth front. We want to develop a vibrant, dynamic economy.”

Tanzania’s economy is expected to expand 7.4 percent this year, compared with growth of 7.1 percent in 2013, he said.

Rwanda became the first East African nation to sell Eurobonds when it raised $400 million in April. The 10-year notes have returned 2.4 percent this year, the best in Africa after Gabon. They fell three basis points, or 0.03 percentage point, to 7.12 percent yesterday. Kenya, Tanzania’s neighbor which has East Africa’s biggest economy, plans to sell as much as $2 billion of Eurobonds, according to Finance Minister Henry Rotich.

Partial Sale

With Tanzania’s Eurobond plans pushed back, the government is seeking as much as $700 million in syndicated loans in coming months, Likwelile said. The government expects to borrow $200 million through a syndicated loan to be arranged by Credit Suisse Group AG, 113.2 million euros ($154 million) through export credit agency projects involving HSBC Plc and $292.5 million via Sumitomo Mitsui Financial Group Inc. and the Japan Bank for International Cooperation, he said.

“The Credit Suisse one is almost done and we expect the others to flow in the coming months,” Likwelile said. “If the rating is done by February or March, then a portion of the Eurobond would be done.”

Government Expectations

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

“If we look into the future for what Tanzania has, we think we deserve slightly higher,” he said.

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 government has no concerns about increasing the country’s level of borrowing because the total debt to gross domestic product ratio currently stands at about 24.8 percent, Likwelile said.

The government budgeted 1.2 trillion shillings ($740 million) of external, non-concessional borrowing in its spending plans for the current year through June to fund the budget deficit. It plans to trim the shortfall to 5 percent of GDP in 2013-14 from an estimated 5.8 percent a year earlier.

Tanzania’s shilling traded unchanged at 1,622 per dollar 9:52 a.m. in Dar es Salaam. The currency has weakened 2 percent since the start of the year.

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