Sovereign issuance boom in Africa, expertise needed

Nigeria has set the benchmark in more ways than one. Last week, its debut 10-year Eurobond issue raised $500m and was 2.6 times oversubscribed, defying some gloomy predictions. Nigeria did not need to raise funds, its Government was at pains to point out: the main role of the bond was as a sovereign yield benchmark for future Nigerian corporate bond issues.

The Nigerian bond's success proved that investors - in this case mainly from the UK and the US - are keen and believe the African growth story. At the moment there is a mismatch between international investors' interest in the continent, which has some of the world's fastest-growing economies, and the lack of sovereign debt. Aside from South Africa and now Nigeria, only three other sub-Saharan countries (Ghana, Gabon and Senegal) have ever sold bonds on the international market.

But now many other African countries, which do need to raise money to fund development and are keen to get a credit rating, are planning to follow suit. The pipeline of planned African sovereign debt issuance includes over ten countries, from Kenya to Angola, from Zambia to Tanzania, from Senegal to Uganda.

All this activity is already having a two-fold impact on recruitment: first the big banks, if they want to get it on the act, need to beef up their African presence and expertise in order to get the mandates and then sell the country to potential investors. People with knowledge of Africa are already highly sought after, says one London-based recruitment consultant.

In Nigeria's case the mandate "was keenly contested" between banks, as Finance minister Olusegun Aganga proudly said. Deutsche Bank and Citi were eventually chosen as joint bookrunners: "one very strong house in Europe and one very strong house in the US, that is how we split it," he explained. Barclays Capital and Nigeria's FBN Capital were financial advisers.

Second, the countries involved need to employ advisors and to strengthen, or indeed in some cases create, debt management offices, massively increase training and capacity-building. This process has yet to start in any significant way. "Many more African sovereigns are now looking at eurobond issuance," says Razia Khan, head of Africa research at Standard Chartered. "There is great demand for more resources and more technical expertise. It is not clear this capacity building is happening."

There is a big question mark as to who will pay for all this. "There is a need for capacity building, but this has traditionally been the domain of donors," says Khan. "Someone will need to pay, but it is not clear who will." But that's another story.