IFC Kola Bond Opens West African Markets

The International Finance Corporation has racked up another first. In December 2006 it became the first nonresident institution to issue a bond denominated in West African francs(XOF), marking a new milestone in the development of Sub-Saharan Africa's local currency bond market.

The XOF22 billion ($44.6 million) 5-year bond was sold entirely to funds, banks, insurance companies, and pension funds in the eight countries that use the West African franc. All of the proceeds will also be invested locally within the countries of the West African Economic and Monetary Union, thereby helping deepen the region's capital markets while also supporting domestic companies that need long-term local-currency financing.

The West African Franc bond market has until now been dominated by government paper, making it difficult for private sector companies to raise funds through bonds or other financial instruments available in many other emerging markets. IFC hopes its bond will establish a foundation and framework for future issuance, not only by supranationals but eventually by other classes of approved borrowers as well. 

"The African capital markets, particularly in West Africa, could greatly benefit from an acceleration of the development of those markets," said Nina Shapiro, IFC's treasurer, "IFC, as a quality international issuer, can help greatly with that process and demonstrate standards which can be followed by others. It will also allow a deepening and broadening of the market so that different businesses and investors can have access." 

It's a strategy that IFC has already pursued in several other emerging markets. The corporation has been the first, or among the first, foreign institution to issue bonds in many currencies. In the domestic markets, these include Chinese renminbi, Colombian pesos, Greek drachmae, Hong Kong dollars, Malaysian ringgit, Moroccan dirham, and Peruvian soles. In the Eurobond markets, IFC has pioneered issues in Czech koruna, Philippine pesos and Polish zloty. 

The West African franc transaction culminates three years of intensive work during which IFC had to gain approval from the ministries of finance in each of the eight countries in the zone—Benin, Burkina Faso, Guinea-Bissau, Ivory Coast, Mali, Niger, Senegal and Togo. The zone's central bank, regulator and stock exchange also had to give their consent. 

"IFC could not have completed this issue without the strong sponsorship of West African governments that share our commitment to broader and deeper regional capital markets," said Thierry Tanoh, IFC's director for Sub-Saharan Africa. "We are grateful to them." 

IFC has so far identified four local companies in which it will invest the proceeds from the bond. They are Sococim, a cement plant in Senegal, two hotels—Societe Malienne de Promotion Hoteliere in Mali and Societe Burkinabee de Promotion Hoteliere in Burkina Faso—and Tropical Rubber in Cote d'Ivoire. 

The bond carries a 4.75 percent coupon rate and was issued at 100 percent of face value. BICI Bourse, a member of Group BNP Paribas, syndicated the deal with six partner banks from the region: Banque de Developppement du Mali, BIAO, Bank of Africa, Babque Senegalo-Tunisienne, Compagnie Banquaire de l'Afrique Occidentale, and Ecobank.