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Tanzania’s Eurobond launch now imminent

June 16, 2015 DailyNews
TANZANIA is now set to launch its long awaited Eurobond to fund major infrastructure projects after concluding negotiations with the Moody’s and Fitch Ratings for credit rating.

The Minister for Finance and Economic Affairs, Ms Saada Mkuya Salum, said in her budget speech here last week that the government would sign agreements with the two credit rating agencies before the end of the month.

“Talks between the government and Moody’s and Fitch Ratings for credit rating have been concluded.

We hope the government will sign agreements with these companies before July 2015,” she said.

A credit rating is an evaluation of the credit worthiness of a debtor, especially a business entity or a government, but not individual consumers.

The evaluation is made by a credit rating agency of the debtor’s ability to pay back the debt and the likelihood of default. The credit rating represents the credit rating agency’s evaluation of qualitative and quantitative information for a company or government; including nonpublic information obtained by the credit rating agencies’ analysts.

The credit rating is used by individuals and entities that purchase the bonds issued by companies and governments to determine the likelihood that the government will pay its bond obligations.

A poor credit rating indicates a credit rating agency’s opinion that the company or government has a high risk of default ing, based on the agency’s analysis of the entity’s history and analysis of long term economic prospects.

Minister Salum did not say how much the bond would be worth, but she was quoted by media recently as saying the amount of the Eurobond will be determined by the assessment of the credit raters where the country expects good credit rating on the back of sustained economic growth and sound fiscal policies.

However, some observers say Tanzania will need to raise up to US1 billion for purposes of financing infrastructure projects, particularly roads and railway networks Tanzania is inching closer to join the middle-income countries group after enjoying a robust growth of the economy that has pushed down poverty and boosted people’s income.

The East Africa’s second largest economy registered a seven per cent growth rate of the economy last year which boosted the total output of the economy to 79.1 tri/, equivalent to a per capita income 1,724,416/- or 1,038 US dollars.

According to World Bank classifications, for the current 2015 fiscal year, low income economies are defined as those with a GNI per capita, calculated using the World Bank Atlas method of 1,045 US dollars or less in 2013. Middle-income-economies are those with a GNI per capita of more than 1,045 US dollars but less than 12,746 US dollars.

Ms Salum had told earlier saying some investors predict a somewhat similar score to Mozambique. According to information posted on the Trading Economics website in February, Standard & Poors credit rating for Mozambique stands at B+ and Fitchs credit rating for Mozambique is B.

Some prominent economists and analysts have, however, called upon the government to suspend the process until next year, on grounds that the country might not secure a good score.

“There are lot of political risks and economic challenges at present. We have a general election in October and the situation seems to be tense,” said Professor Honest Ngowi, of Mzumbe University.

The Eurobond process in Tanzania was originally launched in 2008, but was postponed due to the global financial crisis and launched again in 2012 with the intention of issuing the Eurobond during the 2012/13 financial year.

Ghana is the first African beneficiary of debt relief to tap international capital markets, after it floated a 750 million US dollar 10-year Eurobond in 2007.

Since then, other countries such as Senegal, Nigeria, Zambia and Rwanda have followed suit. Nigeria has, since its debt-relief of 2004, twice raised money from Eurobonds; first in 2011 with a 500 million US dollar 10-year Eurobond and then in 2013 when it issued a 500 million US dollar 5-year bond at a yield of 5.375 per cent and a 500 million US dollar 10-year bond with a yield of 6.625 per cent. Last year Kenya raised a record 2.0 billion US dollar Eurobond, the largest debut for an African country in the sovereign bond market.
Company — Tanzania
  • Full name
    United Republic of Tanzania