Sierra Leone’s nascent capital market recently achieved a significant milestone with the launch of the country’s first local currency corporate bond, approved by the Bank of Sierra Leone.
The new corporate bond is arranged by United Capital Plc, a leading pan-African investment banking firm, and Pennarth Greene, a Sierra Leone-based corporate finance advisory firm, with support from Invest Salone – a UK government-funded programme for private sector development – through its PROSPER Salone grant scheme. The aim is to raise SLE60 million (approx. £2.2 million) for LAPO Microfinance Company SL – a provider of financial services and credits to micro- and small to medium enterprises operating in Sierra Leone.
According to Christina Clark-Lowes, Invest Salone’s Deputy Team Leader and Investment Lead, the bond is a key step towards a more diversified domestic capital market and will potentially pool in resources from both international and local investors.
“Access to finance remains a critical constraint to private sector growth in Sierra Leone”, said Ms Clark-Lowes. “Many financial institutions are undercapitalised and struggle to extend loans to growth-oriented customers – which is why many local businesses resort to bank overdrafts as the only option to satisfy their financing needs,” she continued. “In this context, corporate bonds represent an exciting alternative, particularly for companies that need longer-term resources.
“An added benefit of raising finance through local currency bonds is that they limit the exposure of Sierra Leonean businesses to exchange rate risk. Given that most international financing is usually in dollars, pounds or euros, local companies who earn in leones and borrow in foreign currencies traditionally have to bear the currency risk. This increases the cost of servicing the debt if the local currency depreciates vis-à-vis the foreign currency. The bond that has been structured for LAPO is in local currency eliminating that risk altogether,” she concludes.
Eshiague Gabriel, Managing Director of LAPO SL, confirmed the importance of the new bond. He stated that it opens up a new and alternative source of funding which, as an investment loan structured in the local currency, is completely devoid of foreign exchange risk.
Dr Gbadebo Adenrele, Managing Director for Investment Banking at United Capital Plc commented, “We are pleased to have advised LAPO on this landmark transaction which fosters the development of the corporate bond framework in Sierra Leone. We are committed to strengthening the capital market ecosystem across Africa through our active participation in novel transactions such as this.”
Dr Claudius Bart-Williams, Chief Executive Officer at Pennarth Greene, noted that the bond opens up a new long-term funding channel in Sierra Leone – within the context of an internationally recognised process including a prospectus, a credit ratings assessment and a trust deed. “Despite the traditional equity investment bias of local investors, they together with international investors have shown tremendous interest in the LAPO bond”, said Dr Bart-Williams. “This would not have been possible without the continuous support and guidance of the Bank of Sierra Leone, and we are delighted to have contributed to the process.”
The new local currency bond puts Sierra Leone in the spotlight, attracting international investors who have never invested in the country before. It also provides a new avenue of transaction for existing investors who are looking to diversify their portfolios. Furthermore, it gives a strong signal to the investment community that Sierra Leone is open to additional sources of funding into its economy.
Invest Salone is a UK government-funded private sector development initiative, which works to encourage investment, generate exports, create jobs and diversify key sectors in Sierra Leone.
PROSPER Salone is a grant-matching facility targeting investors and aiming to reduce the costs and risks of doing business in Sierra Leone. An overview of PROSPER Salone and information on the activities of previous grantees can be found on the Invest Salone website.
United Capital Plc is a leading financial services group in Africa focused on leveraging technology to empower businesses, individuals and governments. It provides financial services in investment banking, asset management, trusteeship, securities trading, wealth management, consumer finance and digital banking, while contributing to economic growth and prosperity across Africa. United Capital Plc is listed on the Nigerian Exchange Group.Since it was founded over 50 years ago, United Capital Plc has cultivated and sustained a heritage of excellence in the financial services sector in Africa. Its track record of transaction execution, industry leadership and client focus are unmatched. It has achieved this by providing top-of-the-line financial services, consistently demonstrating a commitment to execution, excellent service delivery and client satisfaction.
