(Business in Cameroon) - The final draft of the agreement binding Cameroon and the five arrangers of its seventh bond issue on the regional financial market (BVMAC) was submitted to Finance Minister Louis Paul Motazé last Wednesday. According to authorized sources, the target of this issue is maintained at CFAF150 billion, against the CFAF200 billion initial target. 

The government was forced to revise its target downwards due to unfavorable conditions, in the aftermath of the central bank BEAC’s tightened monetary policy, we learn. Indeed, for months now, the BEAC has been organizing weekly liquidity withdrawals and raising key rates to curb inflation.  Such unfavorable conditions pushed rates up in the regional markets, forcing Cameroon to adopt the variable interest and maturity system.  The provisional plan (pending the approval of market regulator COSUMAF) is to issue four types of bonds (instead of the three announced previously). Subscriptions are open from June 12 to 28, 2023. 

Cost control

The first type of bond is a 3-year security backed by a 5.80% interest rate. With that type, Cameroon intends to raise CFAF40 billion, whose first tranche is repayable in 2026, since there is a 2-year grace period. 

The country also plans to raise CFAF40 billion by issuing 4-year bonds with a 2-year grace period and a 6% yield. The first hypothesis was that the country would try to raise CFAF80 billion by issuing 6-year securities backed by a 6.75% rate. However, in its search for low-cost finance, the public treasury has decided to segment the envelope into two. As a result, it can still raise CFAF80 billion but it will be much cheaper since the gross yield would average 5.9% and the principal can be fully repaid within seven years. 

The third type of security is a 6-year bond, with a 6.75% yield, in a bid to raise CFAF50 billion. The grace period for this security is 3 years, meaning the country will start paying the principal in 2027 and complete payment in 2029. The final type of security is an 8-year bond, with a 7.25% yield, in a bid to raise CFAF20 billion. The grace period is three years, with principal payment beginning in 2027 and ending in 2031.

Once again, it appears that in its bid to lower borrowing costs in a challenging financial environment, Cameroon has decided to seek low amounts with long-term securities that require higher interest.

CFAF58 billion to be raised to complete the target 

Despite its strategic calculations, the outcome is not certain. According to sources close to the matter, the five arrangers (Financia Capital, Afriland Bourse & Investissement, Attijari Securities Central Africa, Société Générale Capital Securities Central Africa, and Upline Securities Central Africa) guarantee CFAF92 billion. This means that they will underwrite 61.3% of the overall amount sought even before the operation. This is the lowest volume ever underwritten since Cameroon started operations on the financial market in December 2010.

Underwritten volumes have historically been high during its operations. For instance, For its 2022 bond issue, 90% of the amount sought was underwritten. To achieve a similar rate for the upcoming operation to guarantee the success of the operation, Finance Minister Louis Paul Motaze negotiated to no avail. He wanted the arrangers to guarantee at least 80% of the CFAF120 billion, but nothing came out of it.  

"The arrangers said they simply didn't have enough liquidity, given the tightened monetary policy,” says a source close to the case. 

Therefore, Cameroon will have to seek up to CFAF58 billion in subscriptions from investors to effectively achieve its target.

Brice R. Mbodiam