Living on the hedge and peering into domestic markets


A prominent role in hedging the latest billion dollar-plus Eurobond for Ivory Coast and assisting in the development of domestic bond markets in Africa mark Societe Generale's continued commitment to advancing financial markets in the region.

A role for Societe Generale as the hedging party for a €1.7 billion euro-denominated Eurobond issue sold by Ivory Coast in March 2018 “is a good start: the government can see that the position needs to be hedged, so you don’t get any fluctuation,” said Christian Alain Zagote (pictured), director dealing room, Subsaharan Africa at Societe Generale in Abidjan.

Mr Zagote is hopeful that the adoption of hedging for the Eurobond will inspire the government to hedge the price of cocoa exports from the country. Ivory Coast produces 40% of the world’s cocoa, according to Mr Zagote, exported by state-owned companies responsible for half of that supply. A joint bookrummer on the Eurobond, SG is also seeking to provide currency hedging for the portion of cocoa exported by the other, non-government owned exporters.

“Hedging the Eurobond was welcomed by the government, and hedging the commodities would be equally useful for them,” he said.

Further success this year would come from “remaining close to the government and seeing what their needs are and how we can help with the structuring of more debt raising,” according to Mr Zagote. “There are also big projects that are coming, more for structured finance, offering opportunities for the bank.”

Work on the Eurobond followed the signing of a cooperation between the international retail bank network for SG’s Africa Mediterranean Basin & Overseas Territories (AFMO) and global markets divisions in April 2018. “This agreement lays the groundwork for a more systematic approach in terms of proposing our full offer to corporate clients,” according to Alexandre Maymat, head of AFMO. “Its potency lies in the recognition of the complementary strengths of both parties and the establishment of a unique framework for foreign exchange and rates market activities on the continent, which will allow the co-development of tailored growth and commercial strategies.”

While the success of the Eurobond fulfilled Ivory Coast’s financing requirement for last year, further progress in the development of local capital markets would provide an important alternative source for capital raising in the region, particularly as external debt levels increase. “African nations could face the same bubble of external debt that Asia saw,” said Mr Zagote.

“If they need to repay these Eurobonds immediately, it would not be possible without huge sacrifices, because the amount is rather huge and - what is also difficult - the only way for our government to get foreign currency is to export goods abroad as the economy is limited in commodities. The main export is cocoa.”

As well as assisting with external debt, SG has taken a role in the development of the local currency bond market, principally through Sogebourse, a stock exchange subsidiary of the bank in West Africa, and arranger of a 164 billion CFA francs (€250m) bond was issued in July 2018, “which was the most important operation last year”, according to Mr Zagote.

Sogebourse was the arranger of the biggest issuance of local currency-denominated bonds for a government in West Africa, with an eight-year CFAF274 billion capital raising in 2016 for Ivory Coast. The bonds, which carry a 6% coupon, were syndicated and distributed by SG. “Most of the buyers hold to maturity, although the bonds can be traded,” said Mr Zagote.

Ivory Coast and Senegal are the biggest issuers of domestic bonds in the region, with the former issuing three, 12-year bonds in 2017 with 6.25% coupons in a local market where the most common maturities are between five and eight years.

The domestic bond market in the West Africa region emerged 15 years ago, although issuance has remained stable since 2007, with CFA2.778 trillion of new Treasury bill and bond issuance scheduled for 2019 from the eight countries in the West African Economic and Monetary Union (UEMOA).

Further development of the domestic bond market will depend on the creation of an active secondary trading market, altering the nature of what is a buy-and-hold market for most institutional investors in the UEMOA. The Central Bank has issued guidelines for the repo market that include the creation of an agency and opens the way for prime dealers to operate in the bond market. “We are strongly involved in developing these secondary markets,” said Gustave Niamke, treasurer at Societe Generale Cote d’Ivoire.