BANKS SELL DOLLAR BONDS TO FINANCE POWER PROJECTS

 The country’s drive to overcome a mismatch between demand for electricity and generating capacity is prompting banks to sell dollar bonds to finance power projects, according to a report by Bloomberg.

The Federal Government, which sold 15 power generation and distribution companies last year, is spending $3.5bn to boost transmission capacity this year by 50 per cent from 4,000 megawatts, less than a 10th of South Africa’s full capacity.

Deposit Money Banks are tapping Eurobond markets to be in a position to provide financing for projects, including power, with Sterling Bank Plc seeking to raise dollars after Zenith Bank Plc sold $500m of five-year notes on April 10.

“Nigerian banks will become regular players in the Eurobond market in the coming years,” Samir Gadio, an emerging-market strategist at Standard Bank Group Limited’s London unit said in an e-mailed response to questions on April 24.

“They will need to refinance existing issues before they mature, but also to raise more funding for the financing of power, oil and gas and infrastructure projects,” he added.

The Federal Government’s disposal of the power assets last year attracted about $2.4bn, with most of the financing arranged by local banks, Wale Shonibare, the Managing Director of Investment Banking at UBA Capital Plc, said in a Bloomberg TV Africa interview broadcast on April 25.

Demand for Zenith’s bonds was more than double the amount on sale, the bank said, without saying what the money would be used for.

The issuance, arranged by Goldman Sachs Group and Citigroup, is part of a $1bn global medium-term note programme. Zenith declined to comment beyond the statement.

Sterling Bank plans to sell a Eurobond in 2015 and will also start talks with investors to raise $200m this year, its Chief Financial Officer, Mr. Abubakar Suleiman, said.

“The amount for the Eurobond has not been determined. It is intended to help the bank finance growth,” he said.

Guaranty Trust Bank Plc, which raised $400m in November for oil and gas investments out of a $1bn bond programme, has enough short-term dollar funding, according to the Chief Executive Officer, Mr. Segun Agbaje.

“If we see a long-term funding need we’ll have to raise more funds,” he said in an April 9 interview.

Yields on Guaranty’s Eurobonds due November 2018 have dropped 16 basis points to 6.13 per cent since they were sold. Fidelity Bank’s $300m of four-year Eurobonds have climbed 122 basis points to 8.36 per cent since being issued last May.

“Nigerian banks don’t have significant excess or idle foreign currency funding partly due to regulations; so, when the lending opportunities come up, they tend to have to go to the market to raise funds,” Bunmi Asaolu, an analyst at FBN Capital, said by e-mail on April 15.

“The risks are there because of foreign exchange risk and question marks surrounding transmission and gas supply. This is why some banks have chosen not to participate in the ongoing lending spree,” Asaolu added.

The Central Bank of Nigeria increased the Cash Reserve Requirements on deposits made by government ministries and agencies and state-owned companies to 75 per cent from 50 per cent last year, and told lenders to lower fees and commissions to reduce costs to customers.

The regulator raised requirements on private deposits to 15 per cent from 12 per cent on March 25 to reduce liquidity and support the naira.

“Loan-book growth has become an important objective for domestic banks in their bid to grow earnings,” Adelayo Alabi, an analyst at Lagos-based Greenwich Trust said.

“Dollar debt provides a lower cost of funding than what is obtainable” locally.