(Business in Cameroon) – As expected by the ordinance amending its 2024 finance law, signed on June 20, 2024, the State of Cameroon issued bonds on the international capital market on July 23. According to sources at the Ministry of Finance, this was a private placement with Citigroup Global Markets Ltd as the sole placement agent. This financial group, present in Cameroon through Citibank, also jointly arranged the operation with Cygnum Capital Middle East, a firm specialized in investment banking and asset management in emerging and frontier markets.
The operation resulted in the mobilization of $550 million (over CFA332 billion at the current dollar value) at an interest rate of 10.75% and a maturity of seven years. This amount is lower than the CFA336 billion targeted, according to the enabling decree signed by President Paul Biya on July 22. “We issued $550 million. At the time of drafting the documents, this corresponded to about CFA336 billion,” explained a well-informed source on the matter.
The interest rate seems high compared to recent Eurobond issues by African countries with a similar level of development. In January, Côte d’Ivoire raised $2.6 billion through two issues of 9 and 13 years maturity, with interest rates of 6.30% and 6.85% respectively. In February, Benin followed suit and raised $750 million at an interest rate of 7.9% and a maturity of 14 years. Then, Kenya raised $1.5 billion at an interest rate of 10.37% for a period of 6 years. A month ago, Senegal obtained $750 million at an interest rate of 7.75% for a period of 7 years.
Bill Payments
In preparing its operation, Cameroon expected a high interest rate. “It will necessarily be higher than in 2021 (in reference to the 5.95% rate obtained when refinancing its 2015 Eurobond, editor’s note), and this is not Cameroon’s fault. All issuers pay the price,” said a source involved in the preparation of the operation at the Ministry of Finance. Moreover, the country showcased its investment potential with long-term foreign currency borrowing ratings of B from Fitch Ratings, Caa from Moody’s, and B- from Standard & Poor’s. Earlier this year, Moody’s and Standard & Poor’s (S&P) had even downgraded Cameroon’s rating due to payment delays. However, S&P chose to raise the rating by one notch to B- due to improvements in budget management.
The funds raised by this operation are intended to settle outstanding bills at the Treasury. With the amendment to the 2024 finance law, the envelope for settling outstanding payments increased by CFA317 billion, to stand at CFA537 billion. “The domestic market does not have sufficient depth to allow the mobilization of large volumes of resources over long maturities, hence the recourse to international financial markets,” it was justified at the Ministry of Finance.
Initially, the State of Cameroon wanted to settle these bills over a long period before being constrained by the objectives of its program with the International Monetary Fund (IMF) to liquidate them urgently. With a long-term loan, the country respects the requirements of its program with the IMF, while spreading the repayment of the debt over the initially desired period. Hence the choice of the international capital market. However, the 10.75% interest rate obtained should weigh on debt service in the coming years, in addition to the exchange rate risk associated with any debt denominated in dollars.
