IFC bond facility shields Afro businesses from forex risks

Brian Benza
Staff Writer | Friday May 11, 2012 00:00

The program is aimed at increasing the availability of local-currency financing for private sector businesses in the earmarked African  countries.

In a joint statement released by the two institutions, the IFC says the Pan-African Debt Medium-Term Note Programme will initially focus on Zambia, Ghana, Kenya, South Africa, Uganda and Botswana, but does not give an indication of the amounts involved.

Over the next several months, the IFC says it will work with the respective authorities in the countries to obtain their consent to be part of the program. Standard Chartered has been appointed the sole arranger for the program and will also be the lead manager for many of the inaugural bond transactions.

Other financial institutions may co-lead individual bond issues, according to the statement. Bonds issued through the program will raise funds that the IFC will use to provide long-term, local-currency finance for African businesses, protecting them from foreign-exchange risks.

'A vibrant, local-currency capital market is essential for any country to achieve its full economic potential. Ensuring the development of such markets is a cornerstone of IFC's strategy. By expanding long-term currency finance, we help businesses mitigate currency risks when they borrow capital to grow and create jobs,' said IFC executive vice president and CEO Lars Thunell.

The IFC will invest proceeds from the program in local companies that are contributing to job creation and growth in key areas such as infrastructure. The companies will be able to borrow funding in their local currencies to avoid exposure to foreign exchange risk. 

'Standard Chartered shares IFC's commitment to supporting the development of local capital markets in Africa, which has been a core part of our business for nearly 150 years.

We are delighted to put our capital markets expertise, extensive Africa presence and knowledge of local markets to work in partnership with IFC on this landmark initiative,' Standard Chartered CEO Peter Sands said. The IFC has previously worked with Ghana, Zambia, and eight members of the West African Monetary Union to establish local-currency bond programs. The corporation has also obtained approvals to issue local currency bonds in Nigeria and Kenya.

In the fiscal year 2011, the IFC invested $2.2 billion (P16.5 billion) to support private sector development in the region. Early this year, Botswana-domiciled financial house, BancABC also tied up an investment and advisory deal with the IFC that will allow the pan-African bank to boost its lending to SMMEs in three of the six southern African countries in which it operates.

The comprehensive advisory services programme will complement a US$13.5million (P95.6 million) investment in three banks under the BancABC brand, which include Mozambique, Zambia and Botswana.IFC's investment and advisory partnership will help the banks increase lending and tailor financial products to smaller businesses in southern Africa.