COP 26, Glasgow, 3rd November 2021
The United Nations Economic Commission for Africa (ECA) is pleased to announce the establishment of The Liquidity and Sustainability Facility (LSF) that will be dedicated to providing African governments with a liquidity structure on par with international standards so as to address the African Continent’s specific Eurobond issuance needs. 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 Sustainable Development Goals (SDGs). The LSF’s mission is intended to be achieved by way of investors’ entry into repo transactions with the LSF collateralised by African Eurobond issuances. The LSF will be supported by Citi, who acted as structuring agent and provided expertise in setting up this facility, together with law firms White & Case LLP and Matheson and consultancy firm Eighteen East Capital.
A first transaction, which is expected to be announced in Q1 2022 for a total amount of USD 200 million, is currently in progress and has received interest from a number of large international Asset Managers such as Amundi. It is expected to be funded by Afreximbank.
“We are very pleased to be part of the first transaction of the Liquidity and Sustainability Facility” said Dr. Benedict Okey Oramah, President and Chairman of the Board of Directors of the African Export–Import Bank (Afreximbank), “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.”
“Citi is proud to have advised on the LSF and to provide support in the key structuring aspects of setting-up the facility,” said Jay Collins, Vice Chairman of Banking, Capital Markets and Advisory for Citi. “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.”
Whilst 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 SDG bonds. Launched in the context of the COP 26, the LSF, by enhancing the liquidity of SDG- or climate-linked bonds that are issued by African nations, seeks to dramatically increase the volume of green and blue bond financing, and at more affordable rates. The share of sustainability-linked bonds issued in Africa and the Middle East accounts for only 1 per cent. of the global total amount, indicating that there is a large potential for growth, and opportunities for SDG investors.
“Today Africa needs more liquidity than ever before to finance its recovery and to invest in a bold, and sustainable environment” said Vera Songwe United Nations Under-Secretary-General and Executive Secretary of the United Nations Economic Commission for Africa (ECA). “The Liquidity and Sustainability Facility is launched today at the COP 26 with the goal of rapidly creating a massive and concrete positive impact, a new asset class, intended to effectively mobilise private capital and support Africa’s economic development. We are extremely grateful to our international partners for their interest and support and we look forward to working closely with key global and regional institutions to build the success of the LSF. The LSF will bring more transparency to African debt markets and should improve debt sustainability.”
“African governments have historically faced high cost of borrowing” said Dr. Mohamed Maait, Egypt Minister of Finance andKen Ofori-Atta, Ghana Minister of Finance, “while developed countries have 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."
“It is crucial to have a differentiated approach, and support mechanisms in place to allow the countries that have a sustainable debt and access to international capital markets, such as the Ivory Coast, to mobilise long-term resources and at lower interest rates” commented Alassane Ouattara, President of Ivory Coast. “All initiatives, in particular the Liquidity and Sustainability Facility, and an increased use of pension funds resources, must be considered.”
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. Thanks to the LSF, Africa could save up to an estimated USD 11 billion over the next five years on its borrowing costs.
Following its first African funded transaction, the LSF is expected to raise USD 3 billion by seeking Special Drawing Rights (SDRs*) on-lending from developed countries in the wake of the IMF general allocation of SDRs equivalent to approximately USD 650 billion that became effective on 23rd August 2021.
Committed to operate under high standards of governance, the LSF will transact using an industry standard documentation framework for repos. The LSF is also intended to deal only with counterparties of high credit quality and with full recourse and the universe of eligible bonds the LSF accepts as collateral will be reviewed on a regular basis. The LSF will be supervised by a Board whose members will be announced shortly.
ECA Communications, Sophia Denekew: firstname.lastname@example.org
Citi, Shani Halstead, email@example.com
Eighteen East Capital, David Escoffier, Partner: firstname.lastname@example.org
SLK Capital, Sara Lemniei, Director: email@example.com
*Special drawing rights (SDRs). The SDR is an international reserve asset, created by the IMF in 1969 to supplement its member countries’ official reserves. The value of the SDR is based on a basket of five currencies: the US dollar, the euro, the Chinese renminbi, the Japanese yen and the British pound sterling.
About the United Nations Economic Commission for Africa
Established by the Economic and Social Council (ECOSOC) of the United Nations (UN) in 1958 as one of the UN’s five regional commissions, the United Nations Economic Commission for Africa’s (ECA’s) mandate is to promote the economic and social development of its Member States, foster intraregional integration and promote international cooperation for Africa’s development. ECA is made up of 54 Member States and plays a dual role as a regional arm of the UN and as a key component of the African institutional landscape.
For more information, visit: www.uneca.org
African Export-Import Bank (Afreximbank) is a Pan-African multilateral financial institution mandated to finance and promote intra-and extra-African trade. Afreximbank deploys innovative structures to deliver financing solutions that support the transformation of the structure of Africa’s trade, accelerating industrialization and intra-regional trade, thereby boosting economic expansion in Africa. The Bank has a rich history of intervening in support of African countries in times of crisis. Through the Pandemic Trade Impact Mitigation Facility (PATIMFA) launched in April 2020, Afreximbank has disbursed more than US$6.5 billion in 2020 to help member countries manage the adverse impact of financial, economic, and health shocks caused by the COVID-19 pandemic. A stalwart supporter of the African Continental Free Trade Agreement (AfCFTA), Afreximbank has completed the development of a Pan-African Payment and Settlement System (PAPSS) that was adopted by the African Union (AU) as the payment and settlement platform to underpin the implementation of the AfCFTA. Afreximbank is working with the AU and the AfCFTA Secretariat to develop an Adjustment Facility to support countries in effectively participating in the AfCFTA. At the end of 2020, the Bank’s total assets and guarantees stood at US$21.5 billion, and its shareholder funds amounted to US$3.4 billion. The Bank has ratings assigned by GCR (international scale) (A-), Moody’s (Baa1) and Fitch (BBB-).
For more information, visit: www.afreximbank.com
Citi, the leading global bank, has approximately 200 million customer accounts and does business in more than 160 countries and jurisdictions. Citi provides consumers, corporations, governments and institutions with a broad range of financial products and services, including consumer banking and credit, corporate and investment banking, securities brokerage, transaction services, and wealth management.
Additional information may be found at www.citigroup.com