Tanzania, credit ratings, eurobonds and Dowans

Eurobonds are the rage across the continent: Tanzania is looking at a USD 500 million eurobond launch in FY2011-12; and Kenya, Zambia and Angola are also planning.

The funds will be much needed as our power crisis gets worse and manifesto commitments to ramp up generation don’t go away. And all that gas offshore can’t be shipped overseas. We’ll have to use it ourselves.

But, to get a eurobond issue off the ground, Tanzania will need an internationally recognised credit rating from one of the big agencies – Standard and Poor or Fitch. Would not recogising an adjudication award from the International Chamber of Commerce help that? The award of USD 65 million to Dowans against electricity utility TANESCO for breach of contract may stick in the throat, but was perhaps the inevitable consequence of how resources are often allocated here.

Nigeria saw it’s USD 500 million eurobond issue successfully taken up, indeed 2.5 times oversubscribed. Previous issues have come from Ghana and Côte d’Ivoire.This may be good news for Tanzania, which is apparently planning a eurobond issue for FY 2011-12 for the same amount – half a billion dollars. If Nigeria can do it with oil revenues disappearing, why can’t everybody else?

Happily, Nigeria’s auction wasn’t put off by Laurent Gbagbo’s refusal to pay an interest payment due on December 31st 2010 unless bond holders ‘recognise’ Gbagbo as the legitimate president. If payment isn’t made by January 30, Côte d’Ivoire will be in default. So we can’t accuse investors of seeing Africa as a country.

In Tanzania’s favour? The planned issue of USD 500 million is relatively small – Cote d’Ivoire’s was for USD 2.3 billion. The ‘peace and stability’ brand still counts for something and any post election hiccups we are experiencing won’t frighten the horses.

Either way, is it likely that Tanzania would get a credit rating better than Nigeria’s ‘B’ – speculative, with some medium term risks? Probably not, but increasing interest in oil and gas and largely unmet demand for power would probably still make it a worthwhile punt in the eyes of many.But given the centrality of “likelihood to default” to credit ratings, the Dowans case may have implications that we haven’t considered before.

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One response to “Tanzania, credit ratings, eurobonds and Dowans

  1. Good blog. I was impressed with your good coverage of the African credit markets. Keep up the fine journalism.

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