by Elias Shilangwa
LUSAKA, Sept. 17 (Xinhua) -- Zambia's successful offer of its debut Eurobond will trigger similar and larger options for raising development capital for various infrastructure projects, the private sector said on Monday.
Last week, Zambia successfully sold its debut Eurobond at 750 million U.S. dollars, up from its initial 500 million dollars to private investors through the U.S. market.
The Eurobond attracted 425 investors with the U.S. accounting for 56 percent while Europe came close at 40 percent. Asia and the rest of the world contended for the remaining 4 percent.
According to analysts, the spread of the Eurobond sale resulted in 85 percent being allocated to fund managers while the balance of 15 percent went to the financial services sector such as banks, insurance companies and pension funds.
The 10-year Eurobond with a yield of 5.625 percent has been described by market analysts as a huge success and that more than 11 billion dollars orders were received for the issue.
Private Sector Development Association (PSDA) Chairperson Yusuf Dodia, in analyzing the debut Eurobond, said the challenge for the country is to put the resources from the issuance into good economic building infrastructure programs that will make the country a more competitive and attractive place to do business.
"The transition from bilateral and multilateral borrowing suggests that Zambia has moved from the political arena where debts are written off or rescheduled, ideologies and philosophies are traded against loans, and international political alliances offer pay-offs," he said.
According to him, Zambia has stepped into the global economy and must now play by the international rules and recognize the opportunities and threats that lie ahead.
"The international bond arena is one where we must meet our deadlines, honor our commitments and be prepared to stake our reputation," he added.
His views have been supported by a local businessman and former head of the Zambia Association of Manufacturers (ZAM), a local body representing the interests of manufacturers.
Mark O'donnel said the debut of Eurobond will help in attracting more investment in the country and create more employment opportunities for locals.
"There shall be massive infrastructure and energy projects which would require labor once the funds begin to flow and projects commence. This would enable more people being employed and more companies being created," he said.
The development of infrastructure, he said, will create a conducive environment for businesses to operate and that the Eurobond raises the country's credibility as it will result in more investment.
The official has however called on the government to engage the private sector in initiating various development projects to benefit from the funds.
But former finance minister Ng'andu Magande has expressed concern that the move may force the country head back into the external debt trap.
Magande, who successfully helped the country get out of the 7 billion dollars debt trap in 2005 when donors wrote-off the debt after the country reached the Highly Indebted Poor Country (HIPC) completion point, wondered why the government is now borrowing money on the market from private lenders as opposed to getting concessional loans from developed nations, the country's main online public, the Zambia Watchdog, quoted him as saying.
According to him, following the successful issuance of the bond, Zambia's external debt will now swell to over 2 billion dollars from the current 1.5 billion dollars.
But the government has asked its critics to accept reality and support it as it embarks on massive infrastructure projects.
Deputy Finance Minister Miles Sampa, who led a delegation that went to sell the bond, said the funds are expected to start coming this week and that the government will soon roll out a massive development plan on how the funds will be used.
The successful issuance of the bond, he said, is due to the confidence investors have in the Zambian economy. He said the funds will help the government eliminate power blackouts, traffic jams railway transportation challenges and speed up construction of various infrastructure projects.
Zambia has been planning a Eurobond for many years but the 2008 global financial crisis and the change of government in September last year delayed those plans. Early this year, the government selected Barclays, ABSA and Deutsche Bank of Germany as book runners for the Eurobond while White & Case LLP of the United Kingdom was chosen as a legal advisor.
According to analysts, the bond is the largest order bond for sub-Saharan Africa this year and that the size of the bond means that Zambia will be eligible for the JP Morgan Emerging Markets Bond Issuance Global Index.