- 8 October 2005
Iroko Securities has launched as arranger and sponsor Sphynx Capital Markets, a US$500m multi-currency, multi-issuance structured note programme and the first dedicated to the securitisation and repacking of assets originating from Africa.
The firm recently completed the first offering under the programme: a repackaging of US$24m in aggregrate principal amount of due 2007 zero-coupon Ghanaian promissory notes. The prom notes were discounted by a Ghanaian bank directly to Iroko, evidencing trade flows originated by Eland International, the Inida based trading company that had approached Iroko to do the financing.
The pass-through notes issued under Sphynx were sold mainly to asset managers and financial institutions acrosss Europe, which were attracted by the lure of the double-digit yields on the paper.
Iroko is also working on several repackaging transactions involving CFA bonds issued by teh Republic of Cameroon. Executives from the firm met with the Ministry of Finance last week and an offering of Euro 85m face value notes (around Euro 30m cash value) is expected to be tendered into Sphynx shortly and sold to international asset managers. Iroko expects to repackage several other assets originated from across Africa in 2006.
To source paper for the programme, Iroko positions assets that it has arranged (Government bonds, loans, trade instruments such as bills of exchange, promissory notes and letters of credit, or other domestic currency structured bonds) as a principal, tenders them into Sphynx and issues pass-through notes against them. Notes can be denominated in local currencies or in any major currency.
For investors, the attraction is clear: they avoid the local clearing, settlement, custody, counterparty credit risks and other potential problems they might encounter in dealing in African securities markets and can focus squarely on their investment exposure.
“By inventing and trading notes that represent a beneficial interest in an underlying African asset, investors do away with inefficiencies commonly found in immature markets such as transfer charges, stamp duties or an obligation to notify an obligor on each transfer” Iroko said.
Emerging market hedge funds in particular have been actively sourcing African investment opportunities as yields in more traditional emerging marekts cease to be interesting. Funds will buy either for capital appreciation or for currency exposure. Some African currencies, in East Africa for example, are stable but the securities marekts still offer the benefit of high absolute yields.
In this respect, the Sphynx programme was designed to give international investors access to a new asset class. Notes issued under the programme are governed by English law and settle through Euroclear.
All Sphynx issuance will be investor-driven, but the increasing international investor demand for exposure to active and high yielding bond markets such as those in Kenya, Uganda and Tanzannia, Iroko believes it has every chance of pushing the programme up to its US$500m limit over the next couple of years.
Iroko Financial Products and Exotix Ltd are dealers on the programme; they will act in a principal or agency capacity to place the notes issued under the programme to domestic and international markets on a syndicated or non-syndicated basis. Standard Bank group is the trustee and registrar, and provides corporate administration services. In this capacity, the group has contributed its custody network across Africa.
“This programme offers investors a unique opportunity not only to access high-risk high-return African fixed income assets but also to diversify their investment portfolio with minimum economic dissipation and under optimal conditions of reliability and operational security. As the investment climate improves in regional markets of Africa, we will further promote the interaction between international capital markets investors and their African counterparts with a view to improving liqudity,” said Guy Essome, director of structured credit products at Iroko Securities.