The Mozambique deal started life as a direct loan from Credit Suisse, which was then repackaged into $850m of loan participation notes due 2020 and issued by state-run tuna company Ematum in 2013. In an exchange completed on April 1, investors were switched from the private deal into a new $727m Government of Mozambique 2023 bond — sovereign debt, which investors had always said they wanted, at a reasonable rate, as demonstrated by the strong rally in the notes after the swap.
Tanzania’s private placement, sold in 2013, made its own headlines in November last year when Standard Bank was fined for failure to prevent bribery. The charge related to a $6m payment by former sister company Stanbic Tanzania, which the UK's Serious Fraud Office alleged was intended to induce members of the Tanzanian government to show favour to the $600m private placement proposal. That note, when it was priced, bounced two points in the immediate secondary market.
But the biggest windfall for investors was probably the Angola $1bn private placement sold in 2012 that kickstarted the trend for these notes. That deal, which one source described as “horribly mispriced”, bounced five points in the week after the bond was placed and was up 14 points a year after pricing.
These three deals, in different respects, have all been something of an embarrassment for the arranging banks and to a lesser extent the issuers, but for investors they have been diamonds in the rough of the African capital markets. If a similar opportunity arose, investors would be queuing up to buy, whatever their concerns about liquidity.
On the issuer side, the trade-off that an emerging markets issuer makes when selling a private placement have been well broadcast — pricing has never been attractive compared to selling a public Eurobond, but the big advantage is that you can get the money right now, rather than waiting for a rating and the other legal documentation that makes Eurobond issuance more transparent. When Tanzania printed its private placement, it had at that point been working on getting its ducks in a row for a public Eurobond for several years.
That trade-off has not changed.
Private placements are also not the only products to carry the risk of embarrassment. Kenya’s first Eurobond, sold in June 2014 and raising $2bn, was last year subject to widespread rumours and reports of an alleged misuse of those funds, which the government has denied.
African sovereign private placements have their own set of idiosyncrasies and it has been easy to point out their failings. But they exist for reasons that have not disappeared. For some issuers, these advantages will still outweigh the public problems of the last few deal, so more issues will surely follow.