Zambia has become the latest Sub-Saharan
sovereign to tap the international capital markets, issuing its
inaugural sovereign bond.
The benchmark offering incorporated a new
structure designed to protect client money from rogue
The sovereigns debut was for $750
million 10-year Eurobonds. Issued under English law, the
proceeds are expected to be used to fund infrastructure
Stuart Matty, partner and global head
of White & Cases capital markets practice said the
deal incorporated innovative mechanisms to mitigate the risk of
potential future attachment of interest payments by third
parties. Such mechanisms removed the paying function of the
fiscal agent as intermediary from the transaction.
The need to consider such a
payment structure arose out of a
recent case involving a Gabonese
Republic creditor. In that instance, the creditor attempted to
place a freezing order on an interest payment being paid by
Gabon to its paying agent for on-payment to the clearing
systems in order to claim those funds as their own.
Under the new mechanism, Zambia could pay
part of the funds directly to the clearing systems in Europe.
It could therefore avoid the risk of the funds being attached
between the clearing system and the issuing country by a future
creditor of the country.
The paying agent in the US held the funds
on trust for bondholders so the country would have no
proprietary interest in them once they had been transferred to
the US agent.
A high growth market
Zambias inaugural issue was the
first public bond to come out of sub Saharan Africa this year.
three issuances of 144A securities offerings: for Nigeria,
Namibia and Senegal. More sovereign issues are expected from
Africa in the near future.
According to Matty, more
companies will also likely look to access the fixed income
markets in the coming months. Well see banking
sector issuers out of countries in sub Saharan Africa,
said the White & Case partner. These are more likely
to come from countries where the sovereign has already issued
and established a benchmark.
Matty also listed state-owned companies,
and companies in the resource and telecoms sector as being
among the most likely to issue.
challenge now, given the volatility in investor demand caused
by macro-economic events, its only going to be the very
good names or those with some state ownership that are able to
access the market, said Matty.
White & Case advised the
Republic of Zambia, Clifford Chance advised the banks. Barclays
and Deutsche Bank acted as the joint lead arrangers.
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