Investors bombarded Zambia's debut international bond offering, with demand outstripping supply of the debt by 15 times, and leading to an unusually low rate of borrowing for an African sovereign.
Zambia went to the international markets last week to raise $750 million in bonds and the overwhelming response turned the country's debut offering into sub-Saharan Africa's most successful bond launch. The result signaled strong confidence in the political and economic direction of a nation that even 20 years ago was considered one of Africa's worst basket cases.
Investor demand exceeded the initial offer by 15 times, according to Zambia's Ministry of Finance. Zambia initially hoped to raise $500 million, but increased the over in response to strong demand. The 10 year bond carried a coupon – or the interest rate Zambia will owe – of 5.375 percent. That's a more favorable rate than Spain could currently get, with their 10 year notes yielding roughly 5.7 percent.
“This is not only the largest order book for sub-Saharan Africa, but also at 5.375 percent is the lowest coupon, meaning the most favorable price,” said Zambia’s finance minister Alexander Chikwanda at a press conference in Lusaka last Friday.
Zambia has now established a history of holding peaceful, credible and transparent elections. In 2011, long time opposition and populist leader of the Patriotic Front Michael Sata won presidential elections, unseating a government that had been in power for 20 years.
“Investment thrives in a stable and peaceful political environment. That investors oversubscribed to Zambia’s bond is a clear proof of how much they appreciate the stability of Zambia’s political climate.” Dr. Lubinda Habazoka of the School Of Business at Copperbelt University told the Monitor
The country also boasts rising revenues and a low debt load. Having generated a total of $5 billion in copper mining investment over the last 10 years, Zambia's annual copper production is projected to reach 1.5 million tonnes by 2016. This coupled with an international debt standing at $1.5 billion, also led to investors scrambling for Zambia’s bond, according to Dr. Habazoka.
“More investors are willing to put their money in the Zambian economy because the projections and current levels of Foreign Direct Investment are very attractive.” noted Dr. Habazoka “Besides, Zambia has managed and maintained low levels of internal and external debts since reaching the Highly Indebted Poor Country’s (HIPC) completion point in 2005, and has demonstrated good fiscal discipline, a key factor in the oversubscription of Zambia’s bond.”
Meanwhile chairman of the Zambia Public Sector Development Association (PSDA) Yusuf Dodia told The Monitor that the rating of Zambia as a B+ investment destination by both Fitch and Standard & Poor’s was an important sign of financial health.
“Look at Fitch and Standard and Poor’s ratings of Zambia due to the sustained Gross Domestic Product (growth) of 6 percent in the last 10 years which has resulted in the reduction of the inflation rate to 6 percent from 30 percent in the year 2000," said Dodia “Investors do not want to invest in stagnant economies. So the B+ ratings were definitely a plus for Zambia and it contributed to the oversubscription to the bond.”
According to Mr. Chikwanda, more than 400 investors took part in the issue with the United States of America leading the subscription at 56 percent while Europe got 40 percent. Asia got three percent and others got 1 percent.
As to the type of investors who took part, the finance mister said, “Different kinds of investors participated in the bond. Asset and fund managers took 80 percent, banks six, pension funds six and others eight.”
The funds would help eliminate power black outs, traffic jams, railway transportation challenges and speed up construction of other infrastructure according to Zambia’s finance deputy minister Miles Sampa.
And in a press statement by the president’s special assistant for press and public relations George Chellah, Zambian President Michael Sata whose populist ideas and negative attitude towards Chinese investors had raised concern after he came in power urged foreign investors “to not fear investing in Zambia if their investment is clean.”
Sata also said, “This happy outcome is credited to the people of Zambia who are the architects of unity peace and stability that our development prospects are anchored on.”