First Local Currency Corporate Bond Successfully Closed in Sierra Leone

July 2, 2024.

Sierra Leone’s nascent capital market achieved a significant milestone on 12 June 2024 with the successful closure of the country’s first local currency corporate bond, approved by the Bank of Sierra Leone.

The bond was arranged by United Capital Plc, a leading pan-African investment banking firm, and by Pennarth Greene, a Sierra Leonean-based corporate finance advisory firm, with support from Invest Salone through its PROSPER Salone grant scheme. It raised SLE32 million (approx. US$1.4 million) for LAPO Microfinance Company, which provides financial services to micro, small and medium enterprises in Sierra Leone. Notably,70% of LAPO’s clients are female, and the bond proceeds will expand LAPO’s loan portfolio and branch network.

The anchor investor was the Africa Local Currency Bond Fund (ALCB Fund), whose aim is to develop the thematic bond market in Africa as part of its wider capital market development mandate.

The Fund invested SLE27 million and assisted in structuring the transaction. Skye Bank, a leading local financial institution, also participated in the transaction and served as the trustee. Christina Clark-Lowes, Invest Salone’s Investment Lead, highlighted the bond’s potential to diversify the domestic capital market and attract international and local investors. “Access to finance remains a critical constraint to private sector growth in Sierra Leone. Yet many financial institutions are undercapitalised and struggle to extend loans to growth-oriented customers, so many local businesses resort to bank overdrafts as the only option to satisfy their financing needs.

In this context, corporate bonds represent an exciting alternative to bank loans, 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 that earn in Leones and borrow in foreign currencies traditionally had 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.

Brock Hoback, Fund Lead at the ALCB Fund, said, “The Fund is delighted to have supported this historic transaction in Sierra Leone. We aim to push boundaries continually and unlock new markets. We hope this transaction will stimulate the Sierra Leonean bond market.

The funds raised by LAPO SL will provide affordable loans to women from low-income households, enhancing their financial independence and empowerment, which aligns perfectly with our mandate. Dr. Gbadebo Adenrele, Managing Director, Investment Banking at United Capital Plc, commented: “We are pleased to have advised LAPO SL on this landmark transaction, which fosters the development of the corporate bond framework deepening the Sierra Leone capital market. 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, Pennarth Greene’s CEO, notes that the bond issuance for LAPO opens a new long-term funding channel in Sierra Leone within the context of an internationally recognised process including prospectus, credit ratings assessment and trust deed. He said, “Despite the traditional equity investment bias of local investors, they together with international investors, have shown tremendous interest in the LAPO bond issue, which represents a new investment asset class as well as the benchmark for a corporate bond yield curve. We have no doubt that this issue has a transformative potential and are delighted to have contributed to the process.” Dr. Bart-Williams continued, “As Sierra Leone’s first officially approved local currency corporate bond, the central bank’s regulatory and approvals process is a key milestone for the country.

This would not have been possible without the continuous support and guidance of the Bank of Sierra Leone. The transaction puts Sierra Leone in the spotlight, attracting new international investors who have never invested in the country before, as well as providing a new avenue for existing investors who are looking to diversify their portfolios. Furthermore, it gives a strong signal to the investment community that the authorities are open to attract additional sources of funding into the economy.” LAPO SL’s Managing Director/CEO, Gabriel Eshiague (pictured), stated that he is particularly excited about this bond as it opens a new and cheaper funding source for the organisation, which is completely devoid of the forex risk that has been associated with foreign debt funding. Invest Salone is a UK funded private sector development programme managed by Cadmus. It aims to increase incomes and jobs for thousands of Sierra Leonean women and men by boosting investments and exports.

PROSPER Salone is a grant matching facility targeting investors with the aim to reduce the costs and risks of doing business in Sierra Leone.

ALCB Fund is an investment vehicle founded by KfW in 2012 on behalf of the German Ministry for Economic Cooperation and Development (BMZ). The Fund’s mission is to support the development of African capital markets by promoting primary corporate bond issuances in local currency. This is achieved by supporting African issuers, investors and intermediaries by acting as an anchor investor and providing technical assistance.

LAPO Sierra Leone is a pro-poor MFI that aims to provide Sierra Leoneans underserved by the financial sector with affordable financial services. LAPO SL was established in October 2007, began lending operations in April 2008, and became the first Sierra Leonean deposit-licensed MFI in 2017. LAPO SL currently serves over 33,000 active clients (99% of which are women) across its 37 branches network. Its majority shareholder is LAPO NGO, a Nigerian non-profit community development organisation initiated in 1987 by Dr. Godwin Ehigiamusoe.

United Capital Plc is a leading financial services group in Africa focused on leveraging technology to empower businesses, individuals, and governments with excellent 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 Nigerian Exchange.

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.

Pennarth Greene is a regulated (Europe and Africa) advisory corporate finance firm, linking capital and opportunities in Europe and in emerging markets, especially in Africa.

In Sierra Leone Pennarth Greene is regulated by the Bank of Sierra Leone as an Issuing House and Financial Adviser being able to sponsor public issues of equities and bonds.

LAPO SL’s Managing Director/CEO, Gabriel Eshiague