* Debut Eurobond hugely oversubscribed
* Funds to help build roads, power grid (Adds background, investor comments)
By Tosin Sulaiman
JOHANNESBURG, Sept 13 (Reuters) - Zambia sold a long-awaited $750 million Eurobond on Thursday, becoming the latest African country to reduce its dependence on foreign aid and tap international capital to meet its infrastructure funding needs.
The maiden 10-year dollar bond from Africa’s top copper producer was issued with a 5.625 percent yield, a market source said, adding that more than $11 billion of orders were received for the issue.
The popularity of the offering by Africa’s biggest copper producer reflects strong investor appetite for scarce frontier African paper.
The yield was 25 basis points tighter than Zambia’s initial 5.875 percent guidance and compares favourably with that of Senegal, whose 2021 Eurobond is currently yielding 5.9 percent. Both countries are rated B+ by Standard and Poor‘s.
“We would have expected it to go well but it looks like it’s gone exceptionally well,” said one investor, who participated in the issue but declined to be named. “The yield looked quite low relative to other sub-Saharan African issuers so it was a bit of a surprise.”
The size of the bond also means it will be eligible for the JP Morgan EMBI Global index, increasing its appeal to major investors.
Heightened global risk appetite and Zambia’s well-planned roadshow were the biggest factors behind the success of the issue, the investor said.
“The general global backdrop is pretty favourable at the moment. There’s been a lot of cash inflows into emerging market debt looking for a home,” he said. “They made a good case for the credit and timed it very well.”
Zambia plans to use proceeds from the issue to upgrade its infrastructure, particularly in its transport and energy sectors.
It is looking to invest over $1 billion in infrastructure projects, especially roads and rural power.
The southern African country has an annual infrastructure funding gap of $500 million, according to the World Bank, which estimates that improvements in this area could boost growth by up to 2 percentage points a year.
Its foray into international capital markets also shows Zambia understands the need to seek other sources of funding as foreign aid budgets decline, said Jan Dehn, portfolio manager at Ashmore Investment Management.
“Other African countries need to take note of this because they’re going to lose donor money,” said Dehn. “Just look at how terrible the fiscal situation and the growth situation is in Europe. Many of these countries are still completely dependent on donor finance.”
Nigeria is considering issuing a second Eurobond of up to $1 billion to fund its power and gas sectors, finance minister Ngozi Okonjo-Iweala said last month.
Kenya also aims to issue a dollar bond of a similar size in the 2013/14 financial year. (Reporting by Tosin Sulaiman; Editing by Ed Cropley, Ron Askew)