17 April 2014

Tanzania: Dar to Lift Capital Market Controls

TANZANIA will ease controls on foreign ownership of its stocks and bonds by next year, as the country seeks to attract investment to finance infrastructure projects that will cost billions of dollars, President Jakaya Kikwete said.

Restrictions that bar non-residents from buying the nation's bonds and block companies that are more than 60 per cent owned by foreigners from trading on the Dar es Salaam Stock Exchange (DSE) will be eased under East African Community (EAC) rules, Mr Kikwete told Bloomberg.

A common market agreement by the five-nation bloc which includes Kenya and Uganda, calls for liberalisation to take place by 2015, he said.

"Our people at the central bank have given me the assurance that we will meet that deadline," Mr Kikwete said.

"There is some liberalisation ongoing, but by 2015 we are going to be fully liberalised." Tanzania is expanding and building new ports, constructing power plants and laying roads under a 42.9 trillion-shilling ($26.3 billion) five-year development plan that's aimed at helping it become a middle-income nation by 2025.

The World Bank, which classifies middle-income nations as having a national income per capita of at least $1,036, estimates Tanzania's was $570 in 2012.

Easing restrictions on securities will help satisfy interest from investors that resulted in the country attracting demand, that was five times the amount it sought to raise last year in a syndicated-loan offering, Mr Kikwete said.

He didn't provide further details on that sale. Yields on Tanzanian Treasury bills are the highest in East Africa. Rates on 91-day T-bills dropped to 12.2 per cent at an auction on April 9 from 13.8 per cent at the last sale in 2013.

That compares with rates of 8.8 per cent for similar-dated securities in Kenya, the region's biggest economy, while Uganda's securities yielded 10.9 per cent at an April 2 sale.

The relaxation of capital controls coincides with the government engaging Fitch Ratings and Moody's Investors Service to rate the country's long-term risk ahead of its debut Eurobond offering.

Dr Servacius Likwelile, the Permanent Secretary in Tanzania's Finance Ministry, said in February the sale of the Eurobond had been postponed until the next fiscal year that begins on July 1, because the country was still awaiting a risk assessment by Citigroup Inc., which slowed the issuing of credit ratings.

Mr Kikwete declined to be specific on what rating he expects the country to get. "I think it's going to be good," he said. Moody's has a B1 rating on Kenya's and Uganda's debt, which is four steps below investment grade.

Fitch rates the countries B+ and B respectively and Rwanda is assigned B, according to data compiled by Bloomberg. B+ is four levels below investment grade and B five steps.

Tanzania's government expects to obtain a credit rating of at least BB, Likwelile said in February, placing the country on par with nations including Hungary and Guatemala.

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