Ecobank has access to global capital markets just as Africa’s economic recovery from the pandemic is about to begin.
Ecobank Transnational, the pan-African banking conglomerate, acquired a significant new investor base last month with a $ 300 million bond offering on the London Stock Exchange by its Nigerian subsidiary. The deal, which carries a 7.1% coupon rate, gives Ecobank access to global capital markets at a good time: the recovery from Covid-19.
“This transaction is Africa’s first non-sovereign bond in 2021 and is an important fundraiser for the banking sector in Nigeria,” the bank said in a statement. “For international investors, this represented an attractive option to gain exposure to Nigeria.”
Fitch Ratings assigned a B- rating to the Ecobank coupon, which has a maturity date of 2026. It noted some drawbacks, including “the constraint of the difficult operating environment in Nigeria” and the low profitability of Ecobank, modest core capital cushions and “very bad loan ratio.” These are offset, Fitch said, by a strong funding profile, good foreign currency liquidity and “regular backing from the Ecobank group”, which operates in 33 African countries.
Ecobank Nigeria’s debt offering is also a safe way for the bank to raise medium-term funds in US dollars, said Busola Jeje, banking analyst at Tellimer, an emerging markets investment advisory firm. “Rising oil prices, as well as the global hunt for high yield instruments, have contributed to the attractiveness – to a greater extent – of Nigerian corporate Eurobonds,” she said. “It is not uncommon for Ecobank Nigeria to seize this opportunity to raise foreign capital, given the best market conditions.
Part of the proceeds, according to Ecobank Nigeria, will be used to support its international trade services and cross-border payment solutions. With the World Bank predicting that the African Continental Free Trade Area will increase the continent’s revenues by $ 450 billion by 2035, Jeje sees Ecobank Nigeria positioning itself to exploit regional trade integration opportunities through links with other Ecobank subsidiaries.
“Although Ecobank’s capital increase may not in itself signal the start of a multiple capital increase by other banks,” she said, “current conditions in the international market appear favorable. to more Eurobond issues compared to 2020. ”