9 DECEMBER 2021
Sub-Saharan Africa: the final frontier
By Miranda Abraham
Over the last 25 years, the sub-Saharan Africa (SSA) loan market - led by South Africa, Nigeria, Ghana and Kenya - has shown extraordinary resilience and strength. And never more so than during the COVID-19 pandemic, where greater investor appreciation for the diverse range of each of the 46 countries’ requirements and opportunities, is only now being fully realised.
As the increasing prevalence of borrowers looking to approach international bond markets continues, so is the increasing trend for syndicated loans and bridge financing.
Having experienced some all-time low volumes during the pandemic, looking forward the outlook for the SSA syndicated loan market is positive, with further economic growth fuelling opportunities in infrastructure, sovereigns and FIs.
The departure of some international banks from the SSA market because of the pandemic has boosted local and regional banks. These banks are now in a position to offer the complementary skills necessary for partnerships of international and regional banks, which is acknowledged by many borrowers to be key to a deal’s success. The combination of global perspectives brought by international lenders, combined with the on-the-ground and in-depth knowledge and insight that comes from local banks, is required more in SSA than perhaps anywhere else in the world.
Sovereign and FI lending have dominated the SSA syndicated loan market, and these sectors are likely to continue to abound during 2022. Infrastructure and telecommunication deals are also expected to be another key theme.
It is an unusual nuance of the African loan market that sovereign loans typically pay a considerable premium over z-spreads of bonds with similar tenors. This premium is factored in as a 'liquidity premium', as loans are regarded generally as far less liquid than bonds. Certainly, on many African sovereign loans, the liquidity premium has unlocked additional liquidity from non-bank investors.
These non-bank investors can provide sizeable tickets and as these institutions’ experience and familiarity with the loan market deepens, it is likely that this pool of liquidity will continue to grow - in turn leading to stronger sovereign loan demand.
While 2020 and 2021 have been difficult years for the SSA loan market, the recovery in oil prices, continued vaccine rollout, buoyant investment in infrastructure, FI and sovereign-linked sectors, together with opportunities for event-driven financing, all bode well for future loan volumes and opportunities.
Abraham is Co-head of Loan Syndications at RMB in London.
This is an abstract from the book “25 Years in the Loan Market”, which marks the Loan Market Association’s 25 anniversary. Visit https://www.lma.eu.com/25-year-book to access the book and read Abraham's full chapter on syndicated loans in sub-Saharan Africa.