The markets in Nigeria and Kenya are creating the building blocks for future growth, especially after a difficult few months in 2015, according to Standard Bank.
 
An increase in capital requirements for the public sector and the need for more sophisticated products by financial institutions have been major drivers of debt capital markets across key regions in Africa.
 
The total size of bonds outstanding in Nigeria, excluding federal government issuance and Eurobonds, stands at approximately $24bn, (N4.8trn), with financial institutions as the main issuers of bonds among the country’s corporate institutions.

Four corporate bond deals, 24 commercial paper issuances, (from six borrowers), and one supranational Eurobond have closed in Nigeria this year.

The bond issuance activity was driven mostly by Fidelity Bank, First City Monument Bank, the Nigerian Mortgage Refinance Company and Transcorp Hotels, whereas Nigerian Breweries, Guinness Nigeria, Skye Bank and Stanbic IBTC Bank dominated the issuance of commercial paper.
 
Kobby Bentsi-Enchill, Head of Debt Capital Markets (West Africa), confirmed that two further bond issuances are likely to close before year end in Nigeria.

He said that a lot of investment and capital raising activity was put off ahead of the March 2015 elections.

However, the expectation of a more prudent fiscal and regulatory regime now being established by Mr Buhari’s new government is leading to renewed confidence in Nigeria’s economic prospects and therefore interest in accessing the capital markets for funding.

Outside of Nigeria, two corporate bonds and one sovereign Eurobond issue have been closed in Ghana in the year to date and two corporate bonds and one domestic sovereign bond are expected to close before year end.
 
For the Francophone West Africa region, there were sovereign Eurobond issuances out of Cote d’Ivoire, Gabon and more recently Cameroon.

The UEMOA region historically had a vibrant debt capital market, with issuances being listed on the regional exchange, La Bourse régionale des valeurs Mobilières (BRVM).

However market activity was significantly dampened in the aftermath of the Ivorian civil war, although there are encouraging signs of market recovery underway.

According to Standard Bank, 2014 proved to be the busiest year for corporate bond issues in Kenya after six corporate bonds worth 30 billion Kenya shillings were issued whilst notes worth nearly Kshs 14 billion were issued in 2015.
 
Wegoki Mugeni, Head of Debt Capital Markets (East Africa), said the Kenyan market started this year “in quite benign fashion”, with interest rate levels below 10% at the shorter end of the market and about 13-14% for 10 year yields.
 
There was one corporate bond issuance from East Africa Breweries of about $50m in the first quarter which was arranged by CfC Stanbic.
 
“The interest rate environment then changed in response to the strengthening of the dollar and interest rates moved up quite dramatically across the East African region,” she said.

The number of fixed income securities issuances decreased dramatically, though a few issuers did still come to market.
 
However, the challenges also present a clear opportunity, according to Mugeni.

”The changes and upheaval are actually important from an investment banking perspective as it means domestic institutional investors in particular are now more conscious of credit reviews and going forward there will be a more discerning investor base and more differentiation in pricing,” she said.
 
There is still is room for corporate issuance to come to market, but more work is needed to prepare them and for investors to assess them.

“There is a lot of liquidity in East Africa and we believe you will still see, if not the same number of corporates, a higher number of corporate issuers in 2016,” she added.