Nigeria’s borrowers have led the way in Africa’s syndicated loan market so far this year, with more than $10 billion of deals signed or in the market. The appetite has been driven by a growth in confidence among international lenders as the continent’s second-largest economy makes inroads into resolving transparency and credit risk concerns.
MTN Nigeria became the latest borrower last week when it agreed a $3 billion loan to expand its network through Nigeria’s Guaranty Trust Bank and other lenders Citigroup, Standard Chartered, Industrial and Commercial Bank of China, China Development Bank and China Construction Bank.
Meanwhile, Dangote Group, West Africa’s largest conglomerate, is in talks to raise a debut $3.5 billion loan to fund fertiliser and oil refinery projects with lead banks Barclays, Guaranty Trust Bank, Standard Bank and Standard Chartered.
Combined, the two jumbo loans almost match the $7.96 billion Nigerian borrowers raised throughout 2012, which is the country’s highest-ever annual loan volume.
“The feeling is that Nigeria will have outstripped South Africa as the top market by 2015 from a loan market perspective. You have already seen that this year – you can’t ignore Nigeria,” one London-based banker said.
Also this year, Nigerian National Petroleum Corp agreed a $1.5 billion corporate deal in January, Indorama Eleme took a $800 million project finance loan in mid-February to fund a $1.2 billion green field fertiliser project, and oil and exploration company Neconde Energy marked its debut in the market with a $470 million corporate deal in early April.
Nigerian banks have traditionally been rare borrowers in the loan market, but Skye Bank became the first since 2008 when it agreed a $150 million debut in May last year, while Fidelity Bank recently agreed an oversubscribed $100 million debut deal through co-ordinators Citigroup and HSBC.
The deal’s success is expected to buoy appetite from fellow bank borrowers, with First City Monument Bank expected to return after a four-year hiatus and Skye Bank already eyeing the market for a speedy return.
“Nigerian banks have been through their reshuffle and I think there is a bit more trust and transparency from the banks than there previously was,” a second London-based banker said.
Increasing transparency and the rapid growth of strong parent companies — South Africa’s MTN Group for MTN Nigeria’s multi-billion deal, for example — means more international banks are opening up their books to cash in on what is considered a huge potential market.
“Nigeria is a big economy and it poses as a very good window for investors to get started on the continent, which will benefit the whole of Sub-Saharan Africa,” a third London-based banker said.
The International Monetary Fund forecasts 7 percent growth in Nigeria over the next two years, in contrast with South Africa’s — historically a syndicated loan hot spot — forecast of 2.8 percent in 2013 and 3.3 percent in 2014.
Nigeria’s foreign direct investment is projected to continue rising, from $5.8 billion in 2011 to $6.8 billion for last year, once the figures are in, the IMF said. It projects FDI to grow to $7.3 billion this year, $8.7 billion next year and $9.6 billion in 2015.
Much of the investment requirements are focused on oil and gas, reflecting Nigeria’s status as Africa’s top oil producer, as well as the power and infrastructure sectors.
Dollar financing is being increasingly sought for infrastructure projects, especially from power companies buying state assets under a privatisation programme launched this year.
Further debt demands from the country’s telecoms companies is expected, as they look to expand networks to tap into the West African nation’s 162 million population.
That growing demand for funds will be partly met by a vast increase in available liquidity open to potential Nigerian borrowers.
“It is not just four international banks in Nigeria any more, consisting of ABSA, Citigroup, Standard Bank and Standard Chartered. There are at least 15 strong international banks that are keen to do deals now,” a fourth London-based banker said, citing French lenders such as Societe Generale and Natixis.
Japanese banks Bank of Tokyo-Mitsubishi UFJ, Mizuho and SMBC are also beginning to show an interest in Nigeria’s loan market, while South Africa’s Investec Bank, Nedbank and Rand Merchant Bank are increasingly active.
STEP BY STEP
Despite the increasing desire to undertake deals in Nigeria, international lenders, particularly those with little or no historical presence in the country, have to adhere to strict credit and country risk criteria, as well as higher pricing.
Interest margins are expected to hover around 400 bps, in line with the 375 bps margin on NNPC’s $1.5 billion deal in January.
Pricing will vary depending on the borrower, but nearly all deals are expected to be above Nigeria’s five-year credit default swaps, which were quoted at 271.81 bps on April 29, according to Thomson Reuters CreditViews.
The seven-year maturity secured by MTN Nigeria on its multi-billion deal and now being targeted by Dangote Group is deemed possible because of both borrowers’ national and continental prominence – although other borrowers with weaker credentials cannot guarantee to get the same treatment, unless pricing fully compensates the risk for lenders, bankers said.
“Borrowers start getting into a finite space for tenors of five years or more, even for a strong credit. One thing that may get the deal get through is the Africa growth story,” the first banker said.