The United Nations Economic Commission for Africa (UNECA) has announced the establishment of the Liquidity and Sustainability Facility (LSF), dedicated to providing African governments with a liquidity structure on par with international standards.
According to a statement from the UNECA on Wednesday, the commission made the announcement at the 26th United Nations Climate Change Conference of the Parties (COP 26) in Glasgow to address the African continent’s specific Eurobond issuance needs.
It further stated that a first transaction is expected to be announced in the first quarter of 2022 for 200 million U.S dollars.
The transaction, expected to be funded by the African Export–Import Bank (Afreximbank), is currently in progress and has received interest from a number of large international Asset Managers such as Amundi.
Dr Benedict Oramah, President and Chairman of the Board of Directors, Afreximbank, said: “We are very pleased to be part of the first transaction of the Liquidity and Sustainability Facility.
“We believe it will offer a strong opportunity to design a new financing paradigm for the continent, one that will stimulate its economic growth and sustained development and attract diversified investments from the international community”.
Also, Mr Jay Collins, Vice Chairman of Banking, Capital Markets and Advisory for Citi, expressed delight in his organisation’s role it played in the LSF.
“Citi is proud to have advised on the LSF and to provide support in the key structuring aspects of setting-up the facility.
“We are focused on supporting emerging markets through a responsible and inclusive transition and our hope is that in the future this structure can be extended to other emerging markets.”
Egypt’s Minister of Finance, Dr Mohamed Maait, said that African governments had historically faced high cost of borrowing.
Ghana’s Minister of Finance, Mr Ken Ofori-Atta, further added that developed countries had long enjoyed the existence of large repo markets for their government bonds, facilitating the creation of stable and additional funding sources.
“With the Liquidity and Sustainability Facility, our aim is to be able to provide the same sort of liquidity-supportive environment to African governments and private investors alike.”
President Alassane Ouattara of Cote d’Ivoire, however, said it was crucial to have a differentiated approach and support mechanisms in place to allow the countries that had a sustainable debt and access to international capital markets.
“Such as the Ivory Coast, to mobilise long-term resources and at lower interest rates.
“All initiatives, in particular the Liquidity and Sustainability Facility, and an increased use of pension funds resources, must be considered,” he said.
According to the statement, while the LSF seeks to support all Eurobonds African sovereigns international financing needs, its goal is to also incentivise sustainability-linked investments such as green bonds and Sustainable Development Goals (SDGs) bonds.
The LSF is also intended to provide international private investors seeking to invest in Africa with a robust framework and a diversified range of opportunities particularly in line with the UN’s SDGs.
The facility’s mission is intended to be achieved by way of investors’ entry into repo transactions with the LSF collateralised by African Eurobond issuances.
It would be supported by Citi, who acted as structuring agent and provided expertise in setting up the facility, together with law firms White & Case LLP and Matheson and consultancy firm Eighteen East Capital.
The LSF is expected to lower the borrowing costs for African sovereigns by turning African sovereign bonds into liquid assets and enhancing African nations’ debt sustainability.
The facility could allow Africa save up to an estimated 11 U.S billion dollars over the next five years on its borrowing costs.
Following its first African funded transaction, the LSF is expected to raise three billion U.S dollars by seeking Special Drawing Rights (SDRs) on-lending from developed countries.
The statement also noted that the facility is committed to operate under high standards of governance and would transact using an industry standard documentation framework for repos.
It is also intended to deal only with counterparties of high credit quality and with full recourse.
Also, the eligible bonds the LSF accepts as collateral would be reviewed on a regular basis.
The facility would be supervised by a board whose members would be announced shortly.