The Rating Game

Tanzania has been experiencing firm and consistent growth, which seems set to continue on the back of new potentially game-changing resource finds. The government has pledged to set up a sovereign fund on the back of which to turn future revenues into tangible improvements in living standards. Yet the country undeniably faces structural impediments that manifest themselves in international rankings. Tanzania’s World Bank Ease of Doing Business ranking for 2015 is 131, down one place from 2014, out of a total of 189 countries surveyed. The government has therefore endeavored to make the commercial environment more appealing at home, and to take newsworthy steps in the international arena that raise its credibility.

In February of 2013 Tanzania felt emboldened to debut in the international capital markets, opting for a $600 million seven-year private bond placement. Standard Bank had been mandated for the deal, at a time when the country had also unofficially mandated Citigroup for a public Eurobond. The underlying purpose of the bond placement was to finance essential infrastructural projects. The deal itself was structured as a floating-rate amortizing note, but being of Reg S-only format meant that onshore US investors couldn’t join the party. Ultimately $600 million was raised at a final price of Libor plus 600 bps, which was the maximum amount Tanzania could borrow in the international markets under the terms of its IMF program.

Tanzania’s follow-up act will likely be the much-awaited Eurobond, a financial instrument several African nations have been experimenting with. In April of 2014 Zambia successfully raised $1 billion from a 10-year dollar-denominated bond, bearing an interest rate of 8.6%, up on the 5.6% print of its first bond issuance in 2012. In 2014, Citibank, present in Tanzania for 18 years, has been consulted by the government with regard to the groundwork, and the “technical” problem that has seen it delayed to 2015/2016—the need for a sovereign rating. In a TBY interview, Citibank Tanzania Managing Director Joseph Carasso explained the institution’s role as follows, “Citibank does not perform risk assessments in the context of rating advisory, but we do assist governments in preparing for the due diligence that rating agencies perform. We help sovereigns to prepare their presentation to the rating agencies, and to articulate and discuss their stories in a balanced and efficient manner.”

The value of the Eurobond deal has yet to be confirmed, but is widely estimated to be up to $1 billion according to Reuter’s. Indeed, back in May 2012, the government had announced a ballpark figure of between $700 million and $1 billion, with HSBC to play lead manager, after which, however, the music stopped. As the Financial Times observes, “Getting one [a rating] takes several months at least and involves meeting the exacting standards of the rating agency.” Regarding the latter, Tanzania’s Finance Minister, Saada Salum, has since announced plans to invite a number of agencies to provide ratings and anticipates receiving an official credit rating by early 2015. She was quoted in Tanzania Invest as stating that, “We expect to get a good credit rating because our economy is in a strong position and we are pursuing sound fiscal policies.” Revenues to be generated from the Eurobonds are, again, to be channeled toward the government’s road, power plant, and other key infrastructure schemes. “This is a new thing for us and we want to proceed with caution,” she continued.

Overall, Tanzania’s economic growth in 2013, at 7.0%, was a solid performance, and this performance will improve further to 7.2% and 7.5% in 2014 and 2015, respectively, according to Bank of Tanzania data. If successful, the Eurobond in 2015 will surely add lasting cache to the Kikwete administration, and be a turning point for its capital markets and financial infrastructure.