Zambia looks to debt markets

27/05/2010 | Sid Verma

Zambia’s drive to acquire an international credit rating will encourage the government and mining companies to issue international bonds, the country’s central bank governor has said

Zambia’s drive to acquire an international credit rating will encourage the government and mining companies to issue international bonds, the country’s central bank governor has said.

The bond market is a “quicker” route to financing than traditional sources, Bank of Zambia governor Caleb Fundanga told Emerging Markets in an interview in Abidjan on Thursday.

“It is all systems go, and the economic conditions are now in our favour”, he added.

Fundanga said that JP Morgan would sign an agreement with the government today to act as an advisor, and would subsequently issue tenders for rating agencies.

The government suspended plans to get a credit rating in May last year due to the global financial crisis.

Fundanga said the credit rating’s primary purpose is to pave the way for stable access to

international market financing for commodity-focused corporates, as well as addressing the balance-of-payments needs of the government.

“The reason why any government wants a credit rating is to raise money,” he said. “Governments should no longer wait to get financing” from traditional sources such as aid donors, “which sometimes takes years to receive”.

He said bond issuance provided “quick access” to large amounts of money and so capital markets “are the best way of financing to getting money quickly.”

Mining companies in Africa’s leading copper producer needed a sovereign bond to provide a benchmark to help corporates to price international bonds, Fundanga said. “Our mining sector is entirely dependent on international financing. Getting, say, $750 million is only possible in international markets.”

Zambia’s move is the latest example of African governments dipping their toes into international markets, buoyed by the regional economic upturn and faced with need to mobilize external sources of financing to fund long-term project such as infrastructure.

Angola last week received a B+ credit rating from Standard & Poor’s and Fitch Ratings, and a B1 rating from Moody’s Investor Service. The credit ratings paved the way for an international bond sale, the government said.

Asked whether Zambia should receive a similar rating, Fundanga said: “In comparative terms to our peers in the region, we are in good shape. I would expect a good rating that is comparable – or even better.”

On the outlook for copper prices, Fundanga said a growing US economy would offset the impact of a “moderate” slowdown in China and anaemic eurozone growth.

The Greek debt crisis caused copper prices to fall from $6,415 a tonne, a 20% fall from mid April. But Fundango said that $4,000 a tonne would still “be the government’s break-even price for the national budget”.

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