African Infrastructure Boom to Boost Syndicated-Loan Growth
The annual amount of credit in the region organized by groups of lenders grew to $17.7 billion last year from $11.2 billion in 2011, according to data compiled by Bloomberg. Syndicated loans total $19.6 billion in the year to date, the data show.
African nations are spending $45 billion annually upgrading roads, ports, electricity plants and other infrastructure, according to the African Development Bank. The continent needs to spend $93 billion a year help accelerate economic growth, leaving a financing gap of about $50 billion, the Tunis-based lender said in May.
“There is a lot of requirement for infrastructure investment,” Clare Dawson, managing director of the London-based LMA, said in an interview in the Kenyan capital, Nairobi. “Many international banks see that there are very good opportunities for investing particularly in infrastructure projects.”
Inadequate infrastructure reduces economic growth across the continent by at least 2 percentage points a year and lowers the productivity of companies by as much as 40 percent, or $40 billion in lost output annually, according to the bank.
International lenders’ interest in the continent is also being driven by a growing population and expanding consumer base, Dawson said.
Africa’s middle class is estimated at 34 percent of the continent’s population, or 350 million people, according to the African Development Bank. The middle class has been defined as individuals with annual income exceeding $3,900.
African industries receiving the most funding include telecommunications and commodities such as cocoa, oil and gas, Dawson said. “Some of the African banks are also becoming more active on a regional basis rather than just in their own countries,” she said.
Banks including United Bank for Africa Plc and Ecobank Transnational Inc. (ETI) of Nigeria, Standard Bank Group Ltd. (SBK) of South Africa and Union Gabonaise de Banque SA of Gabon are among African lenders that have participated in syndicated loans this year, according to Bloomberg data.
Over the next decade, seven out of the 10 fastest growing economies will be African nations, led by Ethiopia, Mozambique and Tanzania, with an average growth rate of 7 percent per annum, while the continent’s population is forecast to reach 1.4 billion by 2025, according to the LMA.
As African companies expand, their demand for syndicated loans is expected to increase as businesses seek larger amounts of capital that may not be provided by a single lender, Dawson said.
Pricing for loans is already declining as more lenders enter the market, according to the Loan Market Association. This year, Ghana’s Cocoa Board reported a drop in margin on its syndicated loan to 70 basis points above Libor from 175 basis points in 2012, it said. The regulator last month signed a $1.2 billion syndicated loan for crop purchases.
In July Aspen Pharmacare Holdings Ltd. (APN), South Africa’s largest drugmaker, said Bank of America Corp. and Standard Bank Group Ltd. are coordinating raising $2 billion of loans to finance acquisition deals it agreed to this year with companies including Merck & Co. and Nestle SA. (NESN) Nigeria’s Dangote Group is also in the process of arranging a $3.5 billion syndicated loan from nine Nigerian lenders and four international banks including Standard Bank, Rand Merchant Bank and Absa Group Ltd.
The LMA is currently promoting the standardization of documentation across Europe, Middle East and Africa to speed up the time taken to process loan applications, Dawson said.
Out of its membership of more than 500 banks and law firms, about 16 are from Africa. The LMA has conducted a recruitment drive in southern Africa and East Africa and plans to continue the exercise in West Africa next year, Dawson said.
Kenya, the world’s biggest exporter of black tea, is the leading market for local-currency loan syndication in East Africa, while Zambia, Africa’s biggest copper producer is the largest market for loans in Central Africa, according to the LMA. The Southern Africa market is dominated by South Africa and Angola, with the bulk of transactions in West Africa going to Nigeria and Ghana.
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