ADDIS ABABA – The UN Economic Commission for Africa (ECA) is set to establish a Liquidity and Sustainability Facility (LSF) that could reach $30 billion Dollars.
The LFS is dedicated to provide African governments with a liquidity structure on par with international standards so as to address the African Continent’s specific Eurobond issuance needs, the Commission said in a statement issued Wednesday.
The Facility, launched in the context of the COP 26, also aims to provide international private investors seeking to invest in Africa with a robust framework and a diversified range of opportunities.
“Today Africa needs more liquidity than ever before to finance its recovery and to invest in a bold, and sustainable environment” said Vera Songwe Executive Secretary of ECA.
Songwe also said the facility’s goal is creating “a massive and concrete positive impact, a new asset class, intended to effectively mobilise private capital and support Africa’s economic development”.
The Facility’s mission is intended to be achieved by way of investors’ entry into repo transactions with the LSF collateralised by African Eurobond issuances.
It will also be supported by Citi, who acted as structuring agent and provided expertise in setting up this facility, together with law firms White & Case LLP and Matheson and consultancy firm Eighteen East Capital.
The first transaction, scheduled to be announced in Q1 2022 for a total amount of $200 million dollars, is currently in progress and has received interest from a number of large international Asset Managers such as Amundi, according to the Commission.
The transaction will be funded by African Export–Import Bank (Afreximbank).
President of Afreximbank, Benedict Okey Oramah said the bank is “pleased to be part of the first transaction of the Liquidity and Sustainability Facility”.
“We believe it will offer a strong opportunity to design a new financing paradigm for the Continent, one that will stimulate its economic growth and sustained development and attract diversified investments from the international community,” the President said.
Whilst the LSF seeks to support all Eurobonds African sovereigns international financing needs, its goal is to also incentivize sustainability-linked investments such as green bonds and SDG bonds.
The LSF is expected to lower the borrowing costs for African sovereigns by turning African sovereign bonds into liquid assets and enhancing African nations’ debt sustainability.
Thanks to the Facility, ECA said Africa could save up to an estimated $11 billion Dollars over the next five years on its borrowing costs.
Following its first African funded transaction, the LSF is expected to raise $3 billion Dollars by seeking Special Drawing Rights (SDRs) on-lending from developed countries in the wake of the IMF general allocation of SDRs equivalent to approximately $650 billion Dollars that became effective on 23rd August 2021, said the Commission.