BUSINESS REPORTER
The United Nations Economic Commission for Africa (ECA) has unveiled a US$30bn facility to provide African governments with a liquidity structure on par with international standards meant to address the African continent’s specific Eurobond issuance needs.
The Liquidity and Sustainability Facility (LSF) is also intended to provide international private investors seeking to invest in Africa with a robust framework and a diversified range of opportunities particularly in line with the UN’s Sustainable Development Goals.
The LSF will be supported by Citi, who acted as structuring agent and provided expertise in setting up this facility, together with law firms White & Case LLP and Matheson and consultancy firm Eighteen East Capital.
The LSF is expected to lower the borrowing costs for African sovereigns by turning African sovereign bonds into liquid assets and enhancing African nations’ debt sustainability. It is estimated that the LSF will result in Africa saving up to US$11bn over the next five years on its borrowing costs.
A first transaction, which is expected to be announced in Q1 2022 for a total amount of US$200m is currently in progress and has received interest from a number of large international Asset Managers such as Amundi and is expected to be funded by Afreximbank.
Afreximbank president Benedict Oramah said the trade finance bank was “very pleased to be part of the first transaction of the Liquidity and Sustainability Facility”.
“We believe it will offer a strong opportunity to design a new financing paradigm for the Continent, one that will stimulate its economic growth and sustained development and attract diversified investments from the international community,” Oramah said.
Jay Collins, Vice Chairman of Banking, Capital Markets and Advisory for Citi, said: “We are focused on supporting emerging markets through a responsible and inclusive transition and our hope is that in the future this structure can be extended to other emerging markets.”
While the LSF seeks to support all Eurobonds African sovereigns international financing needs, its goal is to also incentivise sustainability-linked investments such as green bonds and SDG bonds. Launched in the context of the COP 26, the LSF, by enhancing the liquidity of SDG- or climate-linked bonds that are issued by African nations, seeks to dramatically increase the volume of green and blue bond financing, and at more affordable rates.
The share of sustainability-linked bonds issued in Africa and the Middle East accounts for only 1% of the global total amount, indicating that there is a large potential for growth, and opportunities for SDG investors.
Vera Songwe United Nations Under-Secretary General and Executive Secretary of the United Nations Economic Commission for Africa said Africa today “needs more liquidity than ever before to finance its recovery and to invest in a bold, and sustainable environment”.
“The Liquidity and Sustainability Facility is launched today at the COP26 with the goal of rapidly creating a massive and concrete positive impact, a new asset class, intended to effectively mobilise private capital and support Africa’s economic development. We are extremely grateful to our international partners for their interest and support and we look forward to working closely with key global and regional institutions to build the success of the LSF. The LSF will bring more transparency to African debt markets and should improve debt sustainability,” Songwe said.
Following its first African funded transaction, the LSF is expected to raise US$3bn by seeking Special Drawing Rights (SDRs) on-lending from developed countries in the wake of the IMF general allocation of SDRs equivalent to approximately US$650bn that became effective on August 23.
The LSF is also intended to deal only with counterparties of high credit quality and with full recourse and the universe of eligible bonds the LSF accepts as collateral will be reviewed on a regular basis. The LSF will be supervised by a board whose members will be announced in due course.
