Zambia's Inaugural $750 million Bond Evaluated By Kampamba Shula

Zambia has issued a USD 750 Million inaugural International Bond which was over-subscribed 24 times by 425 Global Investors, thereby representing Sub-Saharan Africa’s largest ever book order.
ISSUES TO CONSIDER
1. Conducted 5-day roadshow covering the key institutional accounts in London, Los Angeles, San Francisco, Boston and New York.
2. Inaugural 10-year International Bond Issue.
3. Raised US$750 million at a coupon of 5.375%.
4. Only the second international bond issuance from Sub-Saharan Africa in 2012 year-to-date(first issuance South Africa’s 2024 offering).
5. Testifies to the potential of Zambia’s economy and the strength of international investor interest in the country.
6. The transaction was announced prior to the U.S. markets opening at 5.30am (EST) on 13 September 2012.
7. Order book of approximately US$12 billion from over 425 investors globally.
8. Transaction priced intraday on an accelerated basis within approximately 6 hours of announcement.
9. The transaction boasted the largest orderbook ever and lowest coupon achieved by a Sub-Sahara African debut international bond issue.
10. Transaction primarily attributed to US investors (56%), followed by those in Europe (40%), Asia (3%) and others (1%). The high quality of investor participation is reflected in the broad distribution to various investor types including Fund Managers receiving 85% of allocations, followed by Private Banks / Banks 8%, Pension / Insurance Funds 5% and others 2%.
11. Barclays and Deutsche Bank acted as lead-managers and joint book-runners on the transaction.

Economeka Consulting (Kampamba Shula)

Last year in his budget the Honorable Finance Minister Alexander Chikwanda announced the Zambian Government's plan to go to the International capital market to issue a first sovereign bond in the amount of $500 million.
This route was an alternative source of financing to secure resources for service delivery by the Zambian Goverment particularly for road and energy infrastructure development.
Those expectations where exceeded on 13 september 2012 when the Zambian goverment issued an inaugural 10 year bond issue to the tune of $750 million.This was on account of the exceeding large order book with a total subscription of $11.9 billion, which works out at 24 times over and above the intended amount of $500 million.
This is not only the largest order book for sub saharan africa but also at 5.375% the lowest coupon rate,meaning the most favorable price.
The fact that zambia is able to garner such huge and unprecedented interest from the international investor community is testimony of the confidence the world reposes in zambia.
According to a statement from the minister all borrowings are intended to be spent on growth projects and social sectors of health and education.The minister hinted at a predominance of funding outlays towards the power sector, for instance $186 million will be allocated towards the Zambian Government's equity into the kafue gorge lower hydro power scheme.
The minister said it is important to use this goodwill to get on a sustainable growth trajectory.I concurr with his view.
There are a few recommendations I would like to suggest in the use of these funds.Given that some funding will go to health and education ,clear lines of accountability and responsibility need to be drawn to give clarity on the trajectory.
As the minister noted most of the funding outlays should be directed at the energy sector.My recommendations would be to look at alternative sources of energy.If zambia is to get on a path of sustainable development we cannot ignore alternative energy sources.The reason for this is the unsatisfied need for industry in zambia.

We need energy to supply further mining projects in the country,large scale manufacturing and retail.The current state of energy supply is inadequate for such ambitious ideals.

In the health sector, funding should be availed to create hospitals and clinics especially for rural areas.
In this regard I am referring to creating facilities that would change the health lanscape in rural areas.In addressing the ever present dilemna which is HIV/AIDS, sustainable treatment facilities should be created.
According to Jane Phiri a practising registered nurse “It is undoubtedly true that health in rural Zambia is beset by a plethora of problems that can be summarised into five broad themes; limited access to preventive measures, appalling primary health care, lack of medicines, use of unqualified personnel and poor infrastructure for both patients and staff.”Funding aimed at directly addressing these issues would fit well on a sustainable growth trajectory.

In education, funding should be used to upgrade the standard of education in Government schools by purchasing books,computers and other useful equipment that will make learning more interactive for pupils and teachers.Funding should also be used to improve the sports facilities in learning institutions which have been left unattended to for a while now.
Back to the power sector which seems to be the only sector with which clarity on funding has been availed,my recommendation for alternative power sources would be Solar power energy  and Nuclear power stations.

Below is a link to the Minister of Finance Address
Minister of finance statement on International Bond

The last and possibly most important sector that the Zambian government should invest this EuroBond money is the railway system.The railway sytem has suffered in recent years due to mismanagement of resources or as the Minister Mr Chikwanda put it as "due to high unacceptable levels of derailments, loss of life and property."
This investment will ease pressure on the roads which are not able to handle some of the heavy loads of cargo being moved through them and create the much needed jobs and money in people's pockets.