African Development Bank Bond Issue on Uganda Securities Exchange to lower Bank's Borrowing Costs
African Development Bank plans to issue a bond on the Ugandan Securities Exchange in the second half of this year, in local currency. The proceeds will be used to fund infrastructure projects in Uganda.
But this will come at a cost because interest rates in Uganda remain high, meaning AfDB’s cost of borrowing will rise.
The development bank said it will borrow the equivalent of $50 million in Ugandan currency in phases, in order to lower its overall cost of borrowing since interest rates are expected to drop later this year as inflation falls.
Uganda’s year-on-year inflation fell for the second month in April to 20.3 per cent from a revised 21.1 per cent, due to slowing food prices, the Uganda Bureau of Statistics said.
However, the government has maintained the 21 per cent Central Bank Rate despite the ease in inflation. “The bond issuance we are pursuing is just the latest strategy the bank is using to assist in Uganda’s overall growth,” said Nana Spio-Garbrah, a financial analyst at AfDB.
Analysts said issuing the bond in local currency will attract more investments.
“If the bank intends to spend the returns on local projects, there’s no need to bring in dollars,” said Alex Muiruri, an analyst with African Alliance.
This will allow AfDB to meet its need for medium-to long term funding while providing an investment opportunity to both local and foreign investors.
The Bank, however, did not disclose the rates at which it will price the bond.
“The AfDB bond might be priced at 1.5 per cent above the market premium as in other African markets,” said Mr Muiruri.
As part of its Local Currency Initiative, the AfDB has issued, since 2005, a series of bonds denominated in or linked to the Botswana pula, Ghana cedi, Kenya shilling, Tanzania shilling, Uganda shilling, Zambian kwacha and the Nigerian naira.
By SCOLA KAMAU The East African Newspaper 12-May-2012