11 March 2018

Tanzania: With Credit Rating, Will Tanzania Issue Bond?

Tanzania's debut credit rating on March 2 could see it issue a Eurobond later this year, even as it protests the "premature" release of the rating by Moody's, who gave it a negative outlook.

Moody's assigned first-time local-and foreign-currency issuer ratings of B1 to Tanzania.

The rating agency justified the negative outlook, saying that the country's "unpredictable" policymaking under President John Magufuli could affect economic growth and the ability to attract foreign investment.

But analysts say that the rating would still allow the country to enter the sovereign debt market as it seeks to fund its infrastructure projects.

"Given Tanzania's low GDP per capita, a "B1" rating -- even with a negative outlook -- was decent, given the worsening debt profiles across the continent. The rating is similar to Ethiopia's, better than that of Rwanda and Kenya, which have had successful multiple issues in the past four years. So, as a debut issuer, it's a decent rating," said Charles Robertson, Renaissance Capital chief economist.

Last year, Dar es Salaam indicated it would be testing the international markets with a debut Eurobond after receiving a credit rating, but opted for syndicated loans.

According to documents from the Bank of Tanzania, Dar had indicated that it would use the proceeds from its Eurobond to finance infrastructure projects, but delayed the process due to a lack of a credit rating.

"We submitted all documents to our lead consultant Citi Group last November (2016). We will borrow up to $700 million, depending on the timing of the Eurobond for the infrastructure projects," Permanent Secretary in the Ministry of Finance and Planning, James Doto, told The EastAfrican at the time.

In September 2017, it emerged that Dar had failed to get a rating agency, which would help it get a fair deal, forcing the government back to the syndicated loans market, with a bias towards concessional facilities.

"The process for the Eurobond started, but was never finalised. We encountered a number of challenges, especially in acquiring a rating agency," said Bank of Tanzania economist Genes Kimaro.

"A rating agency is important because it ensures that we get a fair deal and our bonds are not undersubscribed."

Efforts by The EastAfrican get Tanzania Treasury officials comment on a possible Eurobond run this year were fruitless, as none answered our calls.

Foreign investors

"The rating for the country now suggests that a Eurobond might be issued this year. For those foreign investors who like diversification, they would definitely be interested in Tanzania, giving it lower borrowing costs than Kenya, based on this rating," Mr Robertson said.

While criticising Moody's decision to give it a negative outlook on its debut international credit rating over concerns about the business climate, Dar said the result did not reflect the reforms already in place.

"Tanzania rejects the negative outlook on the credit rating. We expected Moody's to sit down with us to discuss any queries they may have after their review. We have taken several steps to improve the business climate and this wasn't reflected in the rating," said Ben Mwaipaja, Ministry of Finance spokesperson.

In its rating, Moody's said that the negative outlook was partly driven by Tanzania's low fiscal strength driven by a moderate level of government debt given the country's level of institutional strength and economic development.

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