Dar es Salaam plans municipal bonds to deepen debt market

Tanzania's stock exchange said it is encouraging municipalities to sell bonds as the bourse of East Africa's second-biggest economy seeks to attract listings and boost trading volumes.

The Dar es Salaam Stock Exchange is working with the nation's regulator to develop the debt market, improve liquidity and make the bourse a "key focus for long-term capital raising", chief executive Moremi Marwa said in an interview February 7. The exchange met with officials from Kiondoni, Ilala and Temeke, which make up the commercial capital of Dar es Salaam, to issue notes, he said.

More than 70% of Dar es Salaam’s 4.4-million residents live in informal, unplanned settlements that have inadequate infrastructure and services and more than half of them live on about $1 a day, according to Start International, a Washington-based research organisation. The city's population is expanding by about 8% a year, one of the fastest growth rates in sub-Saharan Africa.

Local governments may begin financing capital expenditure through municipal bonds from next year, said Marwa, who began his tenure as chief executive of the bourse on May 20. Dar es Salaam's three councils may either issue debt directly or consider establishing "special-purpose vehicles" that will package the securities to overcome "legal and governance challenges," he said, without elaborating.

Gas reserves
Tanzania ranks as Africa's fourth-biggest gold producer and together with bordering Mozambique has natural-gas reserves that could supply the global market for a decade.

The Dar es Salaam Stock Exchange has 17 companies listed on its main All Share Index and one on its Enterprise Growth Market, or EGM, which targets smaller companies. Two companies are expected to list on the EGM this year, including Mwanza Community Bank and Swala Energy's Tanzania unit, Marwa said. The bourse is engaging the government about selling the state's stake in at least 10 companies that have been earmarked for offloading, including Mbeya Cement Company, which is partly owned by Paris-based Lafarge SA, the domestic unit of India's Bharti Airtel and Mtibwa Sugar Estates, Marwa said. He didn't provide further details.

The bourse has a market capitalisation of 16.6-trillion shillings ($10-billion), according to its website. It's running campaigns on radio and television, in newspapers and on social media to motivate Tanzanians to use the stock exchange, which along with doubling trading times to four hours a day and reducing settlement periods, helped fuel a fivefold increase in trading volumes to 252-billion shillings last year, Marwa said.

Market gains
The All Share Index advanced 26% last year, ranking the bourse as sub-Saharan Africa's fifth-best performer, according to data compiled by Bloomberg.

Tanzania's government first announced plans to begin selling municipal bonds in 2012, when it said it would raise 605-billion shillings to partly finance the 11.6-trillion shilling Kigamboni project in Temeke, according to East African Business Week, a Kampala-based publication. The project involves programmes including the construction of at least 15 000 residential houses.

South Africa and Nigeria are the only countries in sub-Saharan Africa where municipalities have raised funding in the debt market, with Zambia set to become the third when its capital, Lusaka, offers bonds later this year. The Nigerian commercial capital of Lagos, sub-Saharan Africa’s biggest city, sold a record 87.5-billion naira ($533-million) of seven-year debt in November with an annual coupon of 13.5%.

Johannesburg, South Africa’s largest city, plans to offer R1.3-billion ($117-million) of debt by June. – Bloomberg

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