WAEMU: BOAD launches a $246M securitization operation

Thursday, 23 March 2023 17:08
WAEMU: BOAD launches a $246M securitization operation

(Togo First) - As Serge Ekué emphasized last November, securitization is "the only operation" that can help increase the balance sheet of local banks tenfold, an excellent tool that "will enable us to improve the contribution of the financial sector to national development plans.”

The Banque Ouest Africaine de Développement (BOAD) just launched a securitization operation of $246 million (or CFA150 billion). The operation extends from March 20 to April 3, 2023.

Specifically, the securitization operation involves converting sovereign loans that the Bank granted its member States into negotiable securities on the regional financial market. The operation should help the BOAD quickly raise funds to partly finance part of its 2021-2025 Djoliba plan, a strategic investment program, according to Adji Sokhna Mbaye, Director of BOAD Securitization. 

The BOAD Securitization was specially created to combine financial claims or debts into a single package and convert the latter into marketable securities. It is in charge of managing receivables securitization mutual funds (FCTC).

The entity’s boss, Adji Sokhna Mbaye, said the funds raised through the securitization will be spent on key projects that are likely to improve employment, road construction, the GDP of States, and boost the production of clean water, rice, energy, as well as curb CO2 emissions.

Mbaye further noted that the recently-launched operation has one of the best risk-to-return ratios on the market. Also, she stressed, the underlying receivables benefit from a privileged status with a very high seniority and an AAA rating. This means that they have priority in case of default. Given that the BOAD is the only bank with an investment grade rating in the WAEMU, investors should trust it more.

Moreover, with the presence of a junior tranche of 1% subscribed entirely by BOAD, which is a category of securities with a lower priority in the order of repayment than the senior tranches, the Lomé-based institution indicates that it wants to strengthen the alignment of interests with investors.

Adji Sokhna Mbaye also revealed that a minimum 5% reserve account will be set up to protect investors against unexpected losses on the underlying sovereign debt. 

All these incentives should, according to the BOAD, attract regional investors who "are looking for investments with stable and predictable returns, which is a perfect fit for the characteristics of this operation."

Three management and intermediation companies (SGI Togo, Impaxis Securities, and NSIA Finance) have been selected to form the consortium responsible for placing the bonds (securities) on the regional financial market at an annual rate of 6.10% for a maturity of 2.8 years (84 months).

Good timing?

Does the BOAD’s operation have a chance of succeeding? Especially in the current regional context marked by liquidity stress? The concern is also justified given the recent cancellations of issues on the regional debt market. For example, Benin and Mali recently postponed their latest issues on the public securities market, a day before deliberations.

Answering the question, Kokouvi Etsè, the General Manager of SGI TOGO, one of the three SGIs retained for the operation, declared: "The BOAD is a benchmark issuer on our financial market and all investors interested in diversification always want some of its securities in their portfolios. The securities are issued via a securitization vehicle of sound receivables of BOAD on States [...] given its signature quality, the previous issues of BOAD have been sold and closed successfully on the regional financial market.”

Containing debt ratio

This operation enables the BOAD to raise additional funds without resorting to debt. This is because the Lomé-based Bank wants to increase its equity, to meet the financing needs induced by government development projects, as well as the needs of the private sector–projects that are at the heart of the BOAD’s Djoliba plan. 

There is also the Bank’s debt ratio which reached 250% in 2019 – a rate that Serge Ekué has been striving to contain since he took over the lender’s helm.

Increasing equity should, however, make things easier for the Bank. At present, the institution needs a capital increase of CFA554 billion to mobilize a total financing of €5 billion over the period 2021-2025 which is necessary to implement its roadmap. 

Fiacre E. Kakpo

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