Lenders leapt into African deals this week as both Standard Bank of South Africa and MTN Ghana joined the growing number of African credits that have seen facilities attract oversubscriptions in the second quarter.
Standard Bank (Aa2/BBB+) will sign its three year credit facility on May 22. The bank launched the dollar denominated loan at $750m with a 200bp margin before fees. When the deal was launched in March, a funding official suggested that the margin could be high enough for Standard Bank to attract commitments of up to $1.25bn.
Commitments already made could surpass this estimate, said a loans banker. Standard Bank is planning on increasing the amount borrowed from $750m. “It’s going to blow people’s hair back when it signs,” said a senior lender from one of the lead banks. “It’s been a blowout success.”
BTMU, China Construction Bank, Mizuho, Citi, HSBC and Standard Chartered are initial mandated lead arrangers and bookrunners on the deal, with commitments of $100m each at launch. Mandated lead arranger tickets began at $75m.
The bank is the second African bank to see an oversubscription this quarter after a sluggish start to the year for loans from the continent. In late April, Afreximbank (Baa2/BBB-) stunned lenders when it borrowed $631.6m after launching its facility at $300m.
“There’s not much out there at the moment and by lending to borrowers like Standard Bank and Afrexim, you’re getting Africa exposure through an investment grade position,” said a second loans banker. “And it helps that they’re regularly in the market doing loans and bonds.”
Lending to African banks also helps give indirect exposure to Asian borrowers, particularly Chinese firms, as they work alongside many of Standard Bank and Afrexim’s commodity clients, the banker added.
And corporate borrowers are seeing a similar eagerness from lenders for their deals. Telecom firm MTN
Ghana has scaled back commitments for its new loan facility after demand from international and Ghanaian banks saw the deal swell beyond the $300m-equivalent target. “It massively oversubscribed,” said a banker, who declined to give a precise figure ahead of the deal being signed on May 16. “The pricing was fairly well received by the market.” The dual currency loan is denominated mainly in Ghanaian cedi, with around 80% of the $300m-equivalent total committed in the currency. The remaining 20% of the loan is in dollars. Standard Bank is global co-ordinator of the facility.
In another success story, at the beginning of May, South African mining firm Gold Fields scaled back commitments to sign a $500m five year refinancing loan.
“Ghana is going to become more and more important,” said the first loans banker. “South Africa, Nigeria and Ghana — if you haven’t got business in one of those three, you’ve got no business doing African deals.”
Hunting for borrowers
But some lenders have warned that enthusiasm for the deals is a result of a dearth of active borrowers. This has led to a rising sense of frustration as banks look for places to put money to work. It also goes some way to explaining why every syndicated loan for an African borrower has been oversubscribed in the second quarter.
“There’s heavy demand from banks but not a lot of new money transactions,” said a senior loans banker. “There’s a limit in the supply of borrowers and until that changes the volumes will not be there.”
African loan volumes plummeted in the first quarter to their lowest volumes since 1994, and bankers were hopeful that the second quarter could bring a reprieve. But data suggests volumes will continue along the same lines.
Since April 1, $650m of loans have been signed in the region, according to Dealogic. EuroWeek analysis shows there are, in addition, around $2.24bn of outstanding loans in either the documentation or syndication stage that are likely to close in the second quarter. This is still some way from the $8.63bn of loans signed in the same period last year and around $1.5bn short of the $4.4bn signed in Q2 2009 — the lowest second quarter volume recorded since 2005, according to Dealogic.
Most banks are far from reaching their country limits in Africa, even taking into account Ghana Cocobod’s $1.5bn annual trade finance transaction that will refinance a loan maturing in September.
But lenders remain hopeful that the spate of oversubscribed deals could act as a catalyst for African business. “Good news in the region will filter through and encourage borrowers because there hasn’t been a single deal that’s come close to failing this year,” said the senior loans banker.
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