Indebted African nations are turning to an unexpected source for funds.
Many African governments have fallen victim to China’s debt trap, and are now using as much as a third of revenues to service debt. Hence, the need to shift away from Beijing for infrastructure funding is increasingly seen as a matter of desperation. The IMF says that 40% are in debt distress or at high risk.
Strangely, the London Stock Exchange (LSE) has emerged as a savior of sorts when it comes to government and private-sector funding for big initiatives. Boasting deep liquidity, prestige and a broad investor base, the LSE has become the preferred choice for issuing sovereign and corporate bonds and listing of family silver in pursuit of both debt and equity funds. The LSE offers vehicles that attract offshore funders, while the debt remains in local currency—shielding the borrowers from currency volatility.
“LSE is a sophisticated bourse that governments can trust in mobilizing resources,” says Elizabeth Nkukuu, chief investment officer at Kenya’s Cytonn Investments.
Now 34 African sovereign and corporate bonds are listed on the London exchange, worth a total of $28.6 billion. Moreover, 110 African companies, with a total market capitalization of over $200 billion, are listed or trading on the bourse. These companies have raised $16 billion over the past decade.
In 2018, Egypt, Nigeria and Kenya issued bonds in London raising a combined $8.5 billion. All these offerings were oversubscribed, demonstrating investor appetite for these African investments. Nigeria, for instance, which sought to raise $2.5 billion, attracted an order book of $11.5 billion. Kenya went out to raise $2 billion and attracted $14 billion.
It is not just governments flocking to London for cheap capital. Private companies are finding funds in London too. Vivo Energy, a leading retailer and marketer of fuels and lubricants, recently became the largest African IPO at the bourse in a decade, managing to raise $742 million.