(Business in Cameroon) - On May 6, 2020, Cameroon issued 10-year fungible treasury bonds (T-bonds) on the BEAC’s government securities market. This was a first since the creation of the market in 2011.

According to sources close to the case, the issuance was oversubscribed at 120%. While Cameroon was requesting XAF25 billion, investors offered XAF26.7 billion and the country retained the whole amount.

This oversubscription was notably spurred by the attractive interest rate (7%) and the zero weighting Abbas Mahamat Tolli, president of COBAC (regulator of CEMAC region’s banking sector) agreed on for Cameroon’s T-bonds.

In a note he sent to the country’s Prime Minister on May 4, 2020, Abbas Mahamat Tolli, who is also governor of the Central Bank (BEAC), agreed "to apply a zero weighting on T-bonds issued by Cameroon. This agreement is subjected to the prior transmission of the special deposit account agreement duly signed by the stakeholders per the terms stipulated."

According to the note, the zero weighting not only applies to the T-bonds issued on May 6, 2020 but also to all of the securities issued by Cameroon in the framework of the series of T-bonds issuance it launched on April 8, 2020. Thanks to this series, the country plans to raise XAF220 billion for infrastructure projects but to date, the amount raised is XAF166.7 billion.

A boost from COBAC…

According to specialists, this decision is based on information guaranteeing the repayment of the funds raised by Cameroon at maturity. It reassures bank and non-bank investors active in this market and also waives the mandatory cash advance rules.

The 0% weighting “works a bit like the points-based permit: the more mistakes you make, the more points are deducted from your ranking," an authoritative source explains. 

In the CEMAC zone, if a country fails to comply with the various Community convergence criteria (inflation rate, debt level, budget deficit, outstanding debt, etc.) it is sanctioned.

These sanctions take the form of a weighting (an increase of the risk level) on transactions concerning the said government’s securities.

Since 2017, the weighting on Cameroon’s long-term securities has exceeded 80% because of the accumulation of expenditures budgeted but not implemented and the accumulation of budget deficits above the CEMAC standard.

To put it plainly, a connoisseur of the money market confides, this means that “with the 80% weighting, an investor who wanted to invest XAF10 billion on T-bonds issued by Cameroon had to make a cash advance payment of XAF8 billion. However, with the 0% weighting requested by the government and granted by the Cobac, this provision is no longer required. This is less constraining for the investor and gives him more room for maneuver on the market."

Brice R. Mbodiam