Raising Long-Term Funding

Transcription

1 Investment Banking Raising Long-Term Funding Using Debt Capital Markets Presented by Wegoki Mugeni, Debt Capital Markets:East Africa Africa Bond Markets Conference Intercontinental Hotel, Nairobi November 2011

2 Contents 1 Sections 1. Why use the Debt Capital Markets? 2. How do I access Debt Capital Markets? 3. Overview of the Debt Capital Markets 4. What are the key factors for success?

3 Private and confidential Section 1: Why use the Debt Capital Markets?

4 To grow value companies need to find the right investment for growth, manage risk and get the right funding in place 3 Challenges Plan for growth find the right investments Manage risk through the use of various risk measures Investments - grow the company Financing Debt vs Equity Managing Risk Finance the business - choose the right funding mix

5 Expected return The most suitable financing option will often be a blend of debt and equity 4 Ordinary equity Equity Preferred equity Mezzanine Convertible debt Subordinated debt Senior Senior unsecured debt Debt Senior claim on business Contractual interest and principal Interest is tax deductible Monitored via covenants Senior secured debt Risk Debt : Equity Continuum Equity Residual claim against the business Residual returns after contractual payments (dividends +capital gains) Voting & minority protection rights

6 Your choice of debt instrument will depend on several factors 5 Challenges Choose the most efficient funding i.e. : - Lowest direct cost -Timely - Easy to implement - Reduce risk profile Direct funding implications Indirect factors

7 Debt Capital Markets ( DCM ) can be an attractive source of long term funds 6 Cost of debt Tenor Flexibility Availability period Diversify funding source Ease, time to completion Typically lower than some forms of bank debt key is disintermediation Can be short-term and/or long-term (7 days to 10 years) Tenor, currency, drawdowns can be tailor made to suit your requirements Minimum 1 year, no commitment fees Large funding base, higher bargaining power May require regulatory approval, rating, legal due diligence Debt capital Markets offer reasonably-priced debt funding

8 Private and confidential Section 2: How can I access the Debt Capital Markets? Mechanics of raising debt capital funding

9 There are various DCM products to choose from 8 A coherent funding strategy required when analysing the various products Types of DCM products Corporate bonds Project bonds High-yield debt Quasi equity Social bonds Types of issues Public Private Domestic Eurobond Need to have a comprehensive Debt Capital Market Strategy Determine funding requirement & suitable structure Formulate and implement issuance strategy Obtain regulatory approvals Build book, establish diversified investor base

10 Eligibility requirements Issuers of corporate bonds 9 In Kenya, state corporations, are exempt from the CMA requirements Regional bond regulations currently being developed Kenya Uganda Tanzania Rwanda Share capital US$500,000 US$357,143 US$27,778 US$850,000 Net Assets US$1m n/a n/a US$1.7m Incorporation status Financial statements Guarantee Body corporate Audited financial statements complying to IFRS Bank, insurance company or other institution Company or other corporate Accountants report for the 3years before issue Bank or other institution recognized by Only listed companies Accountants report for the 3/5years before issue Bank or other approved institution Body corporate Internationally acceptable accounting standards No specifics CMA Debt to Equity <=400% <=400% <=400% <=400% Op Cash: Total Debt >=40% >=40% >=40% >=40% Profitability 2 of last 3 years 2 of last 3 years 2 of last 3 years 2 years Issue size US$500,000 US$178,571 US$16,667 US$850,000

11 Timelines and Issuance Process Step 1 1 Week Request for proposals Award mandate Appoint Lead Arranger Preparation & Due diligence Step 2 1 Weeks Instruct legal counsel and issuer s auditors Draft documents marketing strategy Step 3 1 Week Issuer s disclosure Legal opinions & accountants report finalised Appoint agents Approx weeks Programme established & Issuance Step 4 Step Week 1 Week Submit to regulators [Rating] Pricing guidance Pricing supplement Register documents final pricing supplements Book-building Financial close & trading 10 Bond Issuance Process Documents (should be compliant and comprehensive) Timetable Information Memorandum Placing: Arranger/Bookrunner [regulatory approvals] Transaction documents: terms and conditions, agreements, Pricing Supplements Investor Briefing presentation Regulatory compliance: legal counsel

12 Private and confidential Section 3: Overview of the Debt Capital Markets

13 Debt Capital Markets Kenya DCM Investors : Banks Banks subscribe to nearly 50% of bond paper Invest in bond assets off their own balance sheets High contagion: invest in either Bonds/Loans DCM Investors : Asset Managers Pension funds are regulated by the RBA Can invest upto 30% of assets under management (AUM) in corporate debt Total AUM KsH331bn (c. $2.47bn); 10% invested Recent transactions Date Issuer Amount (KES) m US$ equivalent (m) Tenor Coupon July-11 Shelter-Afrique 1, years 12.50% July-11 Shelter-Afrique 1, years 182-day TB+1.50% December-10 CfC Stanbic Bank 2, years 7.25% December-10 Safaricom Limited 4, years 7.75% December-10 Safaricom Limited years 182-day TB+1.85%

14 General Parameters: Kenya 13 Tenor: 3yr to 10 yr; 5yr to 7yr maturity most common Size of market: 9 listed bonds (KES 61bn/US$)0.6bn; 4 private offers (KES2.6bn/US$0.26bn) KES 500mn (US$ 6mn) KES 25bn (US$ 312mn); KES1bn (US$13mn) KES 5bn Issue Size: (US$ 63mn) most preferred Coupon Format: fixed and/or floating; fixed transactions have been more prevalent lately Repayment Bullet or Amortising Profile: Transaction 2-3 months Time Frame: Credit Rating: Not required for public offers; required for private offers Listing: Approval from the NSE is required for listed issues; typically take between 3-4 weeks

15 General parameters: Kenya continued 14 Regulatory Requirements: All Transaction expenses: (Legal, Agent and Listing) Capital Markets Authority approvals required; typically take 3-4 weeks Not required for a private offer Transaction expenses range from 1.75% - 2.5% of the issue

16 Debt Capital Markets Tanzania DCM Investors : Banks Banks subscribe to 40-50% of bond paper Invest in bond assets off balance sheets High contagion: banks invest in either Bonds or Loan instruments DCM Investors : Asset Managers All pension funds are statutory in nature; Not currently regulated but regulator is in place Typically invest upto 5-10% of assets under management (AUM) in corporate debt Recent transactions Date Issuer Amount (TZS) Mn US$ Equivalent Tenor Coupon November-10 Tanzania Breweries Limited 15, years 11.41% November-10 Pride Tanzania Limited* 15, years 11.75% January-11 Bank M Limited 3, years 15.00% *credit enhanced by USAID

17 General Parameters: Tanzania 16 Tenor: 2yr to 10 yr; 5yr to 7yr maturity most common Size of market: TZS 86.3 billion (US$47m) Issue Size: Coupon Format: Repayment Profile: TZS 10 bn (US$ 6mn) TZS 52 bn (US$ 34mn); TZS 15 bn (US$10mn) KES 25bn (US$ 16mn) most preferred Fixed and/or floating; fixed transactions have been more prevalent lately Bullet or Amortising Time frame: 2-3 months Credit Rating: Not required for public offers; required for private offers

18 General parameters: Tanzania continued 17 Listing: Regulatory Requirements: Approval from the DSE is required for listed issues; Listing approvals typically take between 2-3 weeks Capital Markets & Securities Authority approvals required; typically take 2-4 weeks DSE approval required for listed issues; typically takes 2-4 weeks All Transaction expenses: (Legal, Agent and Listing) Transaction expenses range from 1.5% - 2.5% of the issue.

19 Debt Capital Markets Uganda DCM Investors : Banks Banks subscribe to 20-30% of bond paper Invest in bond assets on balance sheets High contagion: banks invest in either Bonds or Loan instruments DCM Investors : Asset Managers Pension funds are regulated by the Retirement Benefits Authority Can only invest in tradable securities No regulatory limits in place currently Recent transactions Date Issuer Amount (UGX) Mn US$ Mn Equivalent Tenor Coupon August-10 Stanbic Bank Uganda 28, years 14.50% August-10 Stanbic Bank Uganda 1, years 182-day TB+ 150bps October-09 PTA Bank 7, years 14.00% October-09 PTA Bank years 182-day TB+ 125bps December-10 Standard Chartered Bank 40, years 13.00%

20 General Parameters: Uganda 19 Tenor: 5yr to 10 yr; 7-10 yr maturity most common Size of market: UGX 139bn (US$0.05bn) UGX 2bn (US$ 0.8mn) UGX 60bn (US$ 26mn); UGX 20bn 8mn) UGX35bn (US$ 15mn) Issue Size: most preferred Coupon Format: Fixed and/or floating; fixed transactions have been more prevalent lately Repayment Profile: Bullet or Amortising Time Frame: 2-3 months Credit Rating: No regulatory requirement for credit ratings; Listing: Approval from the USE is required for listed issues; typically take between 2-3 weeks Regulatory Requirements: All Transaction expenses: (Legal, Agent and Listing) Capital Markets Authority approvals are required for public offer & typically take 3-4 weeks Typically not required for private offer Transaction expenses range from % of the issue.

21 Private and confidential Section 4: What are the key factors for success?

22 Stick to the agreed timelines as far as possible but be prepared to adapt to changing circumstances 21 Factors that we can influence Issuer preparedness Issue structure Transaction agents responsiveness 3 rd party factors that need to be monitored Regulators (compliance with requirements) Interest rate environment

23 Other Considerations Tax Exemption Rating 22 KRA approval required Social services include water & sanitation, health, education Kenya - interest accruing from listed social services bonds is exempt from tax; Social services: amenities available for use by the wider public Min 3 year tenor Tanzania interest on listed bonds is exempt from withholding tax Min 3 year tenor Uganda WIP? In Kenya, rating = RBA requirement for private offers Rating agency will typically spend 1-2 days with management Typically takes 4-6 weeks to finalise rating Different methodology for different products (eg.plain vanilla bond vs an asset backed security) Not required for a public offer

24 Create a value partnership with your advisers 23 Flawless transaction execution style Well versed with the market The right adviser Flexible and efficient

25 Private and confidential Appendix

26 The choice of the issuance structure will be influenced by a number of factors including costs 25 Public Bonds Private Bond Amount (KES) 500,000, ,000,000 Arrangement & placing fees 1.50% 1.50% Facility fees 0.15% 0.15% Agents fees 0.74% 0.64% Legal fees 0.20% 0.20% Regulatory fees (Rating-Private bond) % 0.24% Interest Rate Treasury bond 5yr ytm 18.75% 18.75% Margin 1.50% 2.00% Total cost per annum 20.79% 21.30%

27 Recent Issues: Kenya 26 Date Issuer Amount (KES) m US$ equivalent (m) Tenor Coupon July-11 Shelter-Afrique 1, years 12.50% July-11 Shelter-Afrique 1, years 182-day TB+1.50% December-10 CfC Stanbic Bank* 2, years 7.25% December-10 Safaricom Limited 4, years 7.75% December-10 Safaricom Limited years 182-day TB+1.85% October-10 Housing Finance 5, years 8.50% October-10 Housing Finance 1, years 182-day TB % November-09 Safaricom Limited 7, years 12.25% November-09 Safaricom Limited years 182-day TB % October-09 KenGen 25, years 12.50% August-09 Shelter-Afrique years 11.00% August-09 Shelter-Afrique years 182-day TB % July-09 CfC Stanbic Bank 2, years 12.50% July-09 CfC Stanbic Bank years 182-day TB %

28 Recent Issues: Tanzania 27 Date August-10 October-10 November-10 Issuer Tanzania Breweries Limited Standard Chartered Bank Limited Tanzania Breweries Limited Amount (TZS) Mn US$ Equivalent Tenor Coupon 37, years 10.75% 25, years 11.00% 15, years 11.41% November-10 Pride Tanzania Limited* 15, years 11.75% January-11 Bank M Limited 3, years 15.00% *credit enhanced by USAID

29 Recent Issues: Uganda 28 Date August-10 August-10 Issuer Stanbic Bank Uganda Stanbic Bank Uganda Amount (UGX) Mn US$ Mn Equivalent Tenor Coupon 28, years 14.50% 1, years 182-day TB+ 150bps October-09 PTA Bank 7, years 14.00% October-09 PTA Bank years December-10 Standard Chartered Bank 182-day TB+ 125bps 40, years 13.00%

30 2011 DCM Award Highlights Standard Bank Group 29 The Banker - Deal of the Year Bonds: PTA Bank s $300mn debut Eurobond The Banker - Investment Banking Awards - Most Innovative Investment Bank from Africa The Banker - Bank of the Year - Best Bank in Africa - Bank of the Year in South Africa - Bank of the Year in Uganda African Banker Best Issuing House Euromoney Awards for Excellence Emeafinance African Bank Awards - Stanbic IBTC Bank Plc Nigeria - Best Investment Bank in Africa - Best Bank in South Africa - Best Investment Bank in Nigeria - Best Investment Bank in Africa - Best Investment Bank in Kenya - Best Investment Bank in Tanzania - Best Local Investment Bank in South Africa - Best Investment Bank in Botswana - Best Investment Bank in Nigeria - Best Brokerage House in Nigeria - Best Investment Bank in Malawi - Best Bank in Malawi - Best Sovereign Bond Deal in EMEA - South Africa $2bn - Best supranational bond deal in EMEA - PTA $300mn ACQ Finance Banking Awards - Investment Bank of the Year Credit Deals of the Year - Best Bond from Africa: RSA $2bn 5.5% notes due 2020) Global Finance - Best Investment Bank in Africa - Best Debt Bank in Africa - Best Investment Bank in Nigeria - Best Investment Bank in South Africa

31 East African Debt Issuances 30 July 2011 December 2010 December 2010 December 2010 Shelter Afrique (Kenya) CfC Stanbic Bank Kenya Safaricom Limited Tanzania Breweries Ltd KES 2.5 billion Fixed and Floating Notes due 2014 KES 2.5 billion Fixed Notes due 2014 KES billion Fixed and Floating Notes due 2015 TZS 15 billion Fixed Rate Notes due 2013 Lead Manager Lead Manager & Bookrunner Joint-Lead Manager & Bookrunner Lead Arranger & Bookrunner August 2010 November 2009 August 2009 August 2009 Tanzania Breweries Ltd Safaricom Limited Stanbic Bank Uganda Shelter Afrique (Kenya) TZS 37.1 billion Debut Fixed and Floating Notes due 2013 Lead Arranger & Bookrunner KES 7.5 billion Fixed and Floating Notes due 2014 Joint-Lead Manager UGX 30 billion Fixed and Floating Notes due 2016 Sole Bookrunner KES 1 billion Fixed and Floating Notes due 2012 Sole Bookrunner

32 East African Debt Issuances 31 November 2008 November 2007 December 2005 October 2005 Mabati Rolling Mills (Kenya) PTA Bank East African Development Bank Athi River Mining Limited KES 2 billion Fixed and Floating Notes due 2016 KES 1 billion Floating Rate Notes due 2014 UGX 20 billion Floating Rate Notes due 2012 KES 800 million Floating Rate Note due 2010 Joint-Lead Manager Sole Bookrunner Lead Manager Joint-Lead Manager December 2005 October 2006 March 2005 July 2009 Celtel Kenya Limited Stanbic Afrique (Kenya) Faulu Kenya Limited CfC Stanbic Bank Kenya KES 4.5 billion Floating Rate Note due 2009 KES 500 million Floating Rate Note due 2009 KES 500 million Floating Rate Note due 2010 KES 2.5 billion Fixed and Floating Notes due 2016 Joint-Lead Manager Sole Bookrunner Sole Bookrunner Lead Manager

33 Contact Details: CfC Stanbic Bank Anne Aliker Investment Banking: East Africa Naval Sood Capital Markets & Advisory: East Africa John Ngumi Investment Banking: Africa Wegoki Mugeni Debt Capital Markets: East Africa

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