BMCE Bank to Issue Debut Eurobond
By Samir Gadio, Emerging Markets Strategist, Standard Bank Plc
According to various market reports, BMCE Bank (rated Ba1 by Moody’s) is about to launch a debut senior unsecured Eurobond with a tenor of five years. The initial yield guidance is in the low-to-mid 6% area. Overall, the capital raising aims to beef up the bank’s liquidity and fund its international and Pan-African expansion strategy.
Interestingly, BMCE Bank initially announced plans to issue a 5-y USD500m Eurobond in June, but the risk averse global environment and correction in emerging market debt assets at the time forced it to delay the sale.
With the FED now less likely to start tapering its quantitative easing programme until it is justified by the economic data (as indicated by Janet Yellen in recent weeks), there is a window of opportunity for emerging market sovereigns and corporates to tap global capital markets and enjoy relatively benign external financing costs.
The above mentioned yield guidance implies a spread over equivalent US treasuries of around 481 bps to 518 bps, assuming a yield range of 6.125% to 6.5%; in contrast, the Morocco 2022 Eurobond trades at 270 bps over US treasuries. Such metrics point to a decent spread differential between the sovereign bond and forthcoming corporate issue (i.e 211 and 248 bps), even factoring in a new issue premium, especially if the BMCE Bank Eurobond is placed at a yield closer to 6.5%. For example, this compares to a spread differential of 172 bps between the recently issued 5-y Guaranty Trust Bank Eurobond (GTB 18s) and the equivalent Nigerian sovereign notes.
Accordingly, the BMCE Bank Eurobond looks cheap at first glance which should generate appropriate demand for the instrument. Besides, the issuer will also seek to attract bids from the Middle East and Asia, beyond mainstream accounts in continental Europe and the UK, after visiting investors in Abu Dhabi, Dubai, Singapore and Honk Kong.
An interesting feature of the BMCE Group is that it offers exposure not only to Morocco’s financial system, but also francophone Sub-Sahara African countries in which the institution operates. This in turn reduces concentration risk. In fact, international activities (including Bank of Africa, BMCE Bank International, BMCE International, Banque de Developpement du Mali and La Congolaise de Banque) represented 45.6% and 38.1% of the group’s net banking income and net earnings in H1:13.