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The bond beginnings of Benin

23/04/2019

The newly-elected government of the Republic of Benin waited three years to issue an inaugural international bond, timed so well that the debut sovereign ended up paying only 6.0% for half a billion euros of seven-year funding.

Accustomed to borrowing money in the form of loans from multilateral development banks and domestic bonds from the regional financing market, Benin proudly achieved three primary aims with its first international bond: diversifying its borrowings; avoiding foreign exchange risk; and extending the term of its borrowing to more closely match its largescale domestic spending ambitions.

The repayment profile of this instrument, which will be amortised over three years (2024, 2025, 2026), aims to limit refinancing risk in line with the Government’s prudent public debt management policy,

Mr Romuald Wadagni,
Minister of Economy and Finance of the Republic

For good measure, the new financing has reduced the average cost of Benin’s debt.

The proceeds will be used to support the near €14 billion 2016-2021 Government Action Programme (GAP), financing priority projects in infrastructure, the digital economy and electricity, as well as standard of living improvements. "Meetings with investors gave the opportunity to demonstrate the robustness of Benin's fundamentals, as well as the relevance of the GAP and the soundness of reforms implemented since 2016," said Mr Wadagni

While language has more often than not formed a barrier between West African peers and prospective investors, the Benin delegation spoke English and had their own dialogue, developed their own relationships, and were very prepared and precise.

The roadshow for the bond started on March 11, when members of the government and the bond arranging banks visited London, New York, Boston and Frankfurt, “presenting to investors the tangible results of the Beninese government, including key structural reforms, strong economic growth and the rapid reduction of the budget deficit”, according to Mr Wadagni.

Investors praised the performance of the Government since 2016, and the attractiveness of its credit profile by strongly subscribing to this international issuance: the transaction’s order book passed the €1 billion mark in less than two hours and reached a peak of around €1.25 billion during the day,

Mr Wadagni
Minister of Economy and Finance of the Republic

On March 19, the Republic priced a seven-year €500 million bond. As well as succeeding as the first sovereign in Africa to issue an inaugural international bond denominated in euros, Benin was also the first sovereign issuer in sub-Saharan Africa to tap the international bond markets this year, “demonstrating an exceptional speed of execution that seized a favourable market window,” according to Mr Wadagni.

The fact that fellow members of the West African Economic and Monetary Union, Ivory Coast and Senegal have previously issued international bonds (on which Societe Generale had prominent roles) helped, giving investors a reference point for the pricing of the new Benin bond. “Once the credit battle was won, thanks to the great job done by Minister Wadagni and the delegation on the road, DCM teams and syndication worked together to minimise the premium over Côte d’Ivoire’s euro curve,” said Cathia Lawson-Hall, Head of Coverage and Investment Banking for Africa at Societe Generale, a joint bookrunner on the deal.

As well as being an inaugural issue, the choice of euros (Benin’s currency, the CFA franc, is pegged to the European currency) added a second layer of complexity. In the emerging markets, the issuance currency of choice is US dollars, because the major benchmark for the sector is the dollar-based JP Morgan Emerging Markets Bond Index.

The third layer of complexity came from the long tenor of the new bond. Accustomed to raising money from shorter term loans, largely from multilaterals, Benin wanted to fund its public infrastructure projects with long-term commercial financing. 

They wanted to go as long as possible and we felt that, given the price target, seven-year was where our chances were the greatest,

Aymeric Arnaud
Head of Debt Capital Markets for the Middle East, Turkey & Africa at Societe Generale

The final degree of complexity came from competing bond issues from two other emerging markets sovereigns, which had decided to price on the same day as Benin. As well as regular issuer Turkey, Ghana was also raising new money in US dollars. All three countries are in the same rating bracket, while the competing African nation was asking for a massive US$3 billion from investors.