AFC Raises $500 Million for African Infrastructure Projects with Cheaper Eurobond

Africa Finance Corporation (AFC), the leading infrastructure development institution in Africa, has raised $500 million through a Eurobond, marking its return to the international financial markets after a three-year break. The five-year bond was issued at a highly favorable interest rate of 5.55%, drawing significant interest from investors in Europe, Asia, the United States, and the Middle East.

The issuance was oversubscribed by more than two and a half times, with the final order book reaching over $1.2 billion. AFC’s bond was offered at a lower interest rate than similar bonds issued by the Nigerian government, which typically come with rates exceeding 7%. The strong demand for AFC’s bond reflects the institution’s solid financial standing and reputation in the global market.

Samaila Zubairu, President and CEO of AFC, expressed pride in the positive response: “After about three years of absence from the Eurobond market, we are proud of the overwhelmingly positive reception for this bond issuance. It underscores the global capital market’s continued confidence in AFC’s credit story and support for our mandate to develop and finance infrastructure projects that will enable Africa’s sustainable industrialization.”

The funds raised from the bond will support AFC’s ongoing mission to drive rapid industrialization and development impact across Africa. AFC, founded in 2007, has invested $13 billion in projects across Africa, focusing on sectors like energy, transport, telecommunications, and heavy industry. The success of this bond issuance also sets the stage for other African institutions to access global financial markets on favorable terms.

A Boost for Africa’s Development

The success of AFC’s bond not only reflects its strong position in global financial markets but also signals growing confidence in Africa’s infrastructure development. Banji Fehintola, AFC’s Executive Board Member and Head of Financial Services, commented, “This bond signals a gateway for other African issuers to follow suit. Despite market volatility, the demand we secured affirms the resilience of AFC’s credit profile and opens new doors for Africa’s infrastructure financing.”

How AFC’s Eurobond Compares to Nigeria’s

The 5.55% interest rate on AFC’s Eurobond is notably cheaper than what Nigeria typically pays when it issues Eurobonds, often at rates exceeding 7%. This lower rate is a result of several factors:

1. Credit Rating: AFC holds an A3 credit rating from Moody’s, indicating it is a low-risk borrower, which allows it to borrow at lower rates. Nigeria, with its lower credit rating of B2/B3, is considered riskier, prompting investors to demand higher interest rates in exchange for lending.
2. Investor Confidence: AFC’s strong track record in successfully managing infrastructure projects and maintaining solid financial performance has earned the confidence of investors. Nigeria, despite being a larger economy, faces more challenges, such as political instability and fluctuating oil revenues, which affect its ability to borrow cheaply.
3. High Demand: After being absent from the Eurobond market for three years, AFC’s return attracted significant demand, which helped drive the interest rate down. High demand often allows borrowers to secure more favorable rates, as more investors are willing to compete to lend.
4. Institution Type: AFC, as a development finance institution (DFI), focuses on financing long-term, impactful infrastructure projects that tend to be more stable and predictable. This makes AFC less risky compared to government entities like Nigeria, which face more economic and political volatility.

Explainer

• Eurobond: This is a type of bond (loan) issued by a country or corporation to raise money from international investors, typically in a currency like the US dollar. Investors earn interest on the money they lend, and the borrower repays the loan after a set period (in this case, five years).
• Coupon (Interest Rate): This is the fixed rate of interest that AFC will pay to investors each year for borrowing their money. The 5.55% coupon means AFC will pay 5.55% interest annually on the $500 million it raised.
• Oversubscription: This means there was more demand from investors than the amount of bonds available. In this case, investors were willing to lend AFC over $1.2 billion, more than twice the $500 million AFC wanted to borrow, indicating high confidence in AFC’s financial stability.

The success of this Eurobond marks a significant achievement for AFC, showcasing its credibility and the growing interest in financing African infrastructure projects at favourable terms.

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