Tanzania revives plans to float its debut USD 700m Eurobond to fund key projects

Tanzania has revived its plan to float a debut TZS 1.1tn (USD 700m) Eurobond to fund infrastructure projects, especially in the gas sector. This is despite several failed attempts since 2008.

The East African reports that the Ministry of Finance and Economic Affairs, during the financial year 2013/14, awarded ratings agency tenders to Fitch, Standard & Poors and Moodys. However, the companies declined the offer on the grounds that they were not ready to work under the conditions set by the country’s Procurement Act of 2011. A source was not ready to mention the disputed clauses of the Act but he said the firms claimed that the law contravenes their company policies. “Currently, we are trying to reach consensus so that we can work around their policy and our law without problems,” he said.

Bank of Tanzania senior advisor on economic research and policy Alex Ngwinanila said the process was revived again late last year after several attempts to get a rating agency failed. He said that currently the government was in the procurement process stage, but was yet to acquire a rating agency. This is despite an announcement made in 2014 by Finance and Economic Affairs Minister Saada Mkuya that the government expected all the processes needed for floating the Eurobond to be complete by March 2015.

Mr. Ngwinanila said that since the country appointed Citigroup of the UK through the Bank of Tanzania as a transaction advisor, it is yet to get a rating agency. “We are yet to get a rating agency, which is expected to help determine how much can be lent to the country and all the risks involved,” he said.

According to Mr. Ngwinanila, the last attempt had been shelved to put the processes in good order and avoid mistakes, adding that they are optimistic that this time round things will go according to plan.

In October 2014, Tanzania announced plans to allow foreign investors to participate in the purchase of government securities through Treasury and infrastructure bonds without restriction starting in 2015. The Bank of Tanzania’s associate director of Domestic Markets Department Paul Maganga is quoted as saying at the time that the move is expected to help open up the domestic market to competition leading ultimately to increased borrowing and the deepening of the financial markets.

According to the East African, Tanzania is aiming for a benchmark rating of at least BB that both Kenya and Ghana have achieved, which it believes is a good rating especially on factors related to the risks involved. The country started the process of floating a Eurobond in 2008 but the plans were postponed due to the global financial crisis. The process was restarted four years later in 2012 with the government planning to issue the Eurobond during the 2012/13 financial year, however this did not take place. Ghana became the first African country to issue a USD 750m 10-year Eurobond in 2007. In East Africa, Rwanda became the first country to raise money through a Eurobond for the amount of USD 400m in 2014 followed by Kenya, which recently raised USD 2bn.

Tanzania’s latest effort to try and raise funds to improve its infrastructure is part of the current infrastructure development theme which is playing out across SSA. We are however hopeful that lessons have been learnt as to why the bond issuance has failed to pass muster in the past and fiscal and monetary authorities are able to learn from the experiences of other SSA countries which have succeeded in raising money through bonds.