Deutsche BankCorporate & Investment Bank

Deutsche BankCorporate & Investment Bank

Effects of the European Sovereign Debt Crisis on the International Debt Capital Markets – Opportunities for Sub-Saharan African Sovereign Issuance

Prepared by Deutsche BankJune 2012

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Talking Points

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Over the past 5 years, the Global economy has encountered unprecedented stresses as sumarizedbelow:

During these times of extreme market uncertainty a few common themes prevailed:

1. A general flight to quality with investors favouring the perceived "lower-risk" assets

2. A reduction of benchmark rates in the US and Europe

3. Search for higher yielding assets by investors looking for relative value

4. A robust demand for Emerging Market assets evidenced by capital inflows into the asset class and the growth in international EM sovereign issuance volumes

Given the growth projected for Developed Markets remains muted relative to Emerging Markets, we believe the trend of increasing participation of EM in the international financial markets will continue

In line with the rest of the Emerging Markets, the resilience of Sub-Saharan African credit can be seen in the recent spread performance of outstanding international bonds

We expect the financial markets to remain supportive of SSA sovereign issuance, who can access the markets opportunistically as and when issuance windows present themselves

FINANCIAL CRISIS GLOBAL ECONOMIC SLOWDOWN

EUROPEAN SOVEREIGN DEBT CRISIS

2007 2012 (current)

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Evolution of the Sovereign Debt Crisis

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250

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350

400

450

Jun-11 Sep-11 Dec-11 Mar-12 Jun-12

Greek parliament approves savings programme in bid to secure further IMF/EU aid

€12bn tranche of aid released to Greece. 2nd bailout package for Greece announced

S&P rejects proposal to make private creditors share bailout costs

Italy aims to save €40bn over 3 years to reduce budget deficit

Fitch downgrades Greece to CCC-

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1 US Congress approves deficit cutting plan and higher debt ceiling. S&P downgrades US from AAA to AA+

US Federal Reserve commits to zero interest policy until 2013

ECB purchases €22bn of debt from troubled Eurozone countries

Financial transactions tax proposed by Germany and France

IMF calls for European banks to increase capital funding

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2

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President Obama announces $450bn of measures to tackle unemployment

Moody’s downgrades Italy rating by 3 notches to A2. Spain downgraded to AA by Fitch and A1 by Moody’s

Germany increase its share of bailout fund by €88bn to €211bn

BoE increases Asset Purchase Facility to £275bn

EU leaders agree to 50% write-off of Greek debt and increase of bailout fund to €1tr

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4

Greek referendum postponed

Mario Monti appointed PM of Italy

Moody’s downgrades Hungary to Ba1. S&P lowers ratings for 15 of 37 largest global banks.

S&P downgrades 10 Spanish banks

ECB cuts benchmark interest rate to 1%

ECB provides banks with c. €500bn of liquidity

Italy approves €33bn austerity package

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5

S&P downgradescredit rating of EFSF from AAA to AA+

US Federal Reserve says zero interest rate policy to hold until end 2014

S&P downgrades 34 Italian financial firms

Investors holding 85.8% of Greece’s private debt agree to participate in the country’s € 206bn debt restructuring

2nd bailout of €130bn agreed for Greece

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Spain expects to achieve its budget targets by 2013 and no Spanish banks require any bailouts according to Govt. S&P downgrades Spain to BBB+

IMF raises $430bn plus to make loans to troubled nations

Francois Hollandeelected President of France

Bankia, of Spain, asks for a bailout of €19bn

New Democracy Party wins Greek elections

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EMBI Composite Spread Performance

bps

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Benchmark Rates are at an All Time Low

USD Benchmark Rates have declined significantly

Source: Deutsche Bank, DataQuant, QuantEM June 2012

Bund Benchmark Rates have declined significantly

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Impact of European Crisis on Markets

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Equity markets performance

Spread performance of 5-year EM CDX and EMBI Global Composite Index

Source: Deutsche Bank, DataQuant, QuantEM June 2012

Deutsche BankCorporate & Investment Bank

Sovereign Debt Issuance in the International Capital Markets

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Debt Issuance in the Emerging Markets (US$bn)

17 20

42 49 45

2 5

11 7 10

10 10

22 16 18

4 -

2 5 2

2007 2008 2009 2010 2011

TotalEM:

32bn 35bn 77bn 77bn 76bn

Total Global:

136bn 165bn 391bn 288bn 214bn

EM / Global:

24% 21% 20% 27% 35%

Source: Dealogic

EM sovereign issuance has grown on a cumulative average growth rate of circa 19% (2007 – 2011)

African sovereign issuance has remained stagnant, despite SSA region maintaining macroeconomic factors (strong GDP growth, favourable demographics, ample natural resources) and strong fiscal discipline (relatively low debt levels)

Hence, there is tremendous potential for SSA sovereign issuance to grow in order to “catch-up” to the wider EM sovereign issuance growth

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Favourable Technical Environment (Fund Flows)

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Potential of rebalancing of fund portfolios Total cash returned in 2012 = US$62 billion

Fund Flows Cumulative flows into EM Hard Currency Funds (%AUM)

According to the IMF's Coordinate Portfolio Investment Survey, as of 2010, the region had attracted only USD 10bn of foreign investment in debt securities or less than 0.1% of the global total.

Even a modest reallocation of global investment portfolios towards Sub-Saharan Africa could therefore result in substantial flows to these markets.

Source: Deutsche Bank Research

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Sub-Saharan Africa – Poised for Robust Capital Market Activity Growth

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Nigeria(B+, NR, BB–)

Cameroon(B, NR, B) Gabon

(BB–, NR, BB–)

Senegal(B+, B1, NR)

Uganda(B+, NR, B)

Botswana(A-, A2, NR)

Lesotho(NR, NR, BB–)

Namibia(NR, Baa3, BBB–)

Rwanda(B, NR, B)

Ethiopia(NR)

South Africa(BBB+, A3, BBB+)

Mozambique(B+, NR, B)

Ghana(B, NR, B+)

Burkina Faso(B, NR, NR)

Benin(B, NR, B)

Pre-transition economiesOil ExportersDiversified EconomiesTransitioning Economies

Source: Foreign-Currency Ratings of S&P / Moody’s / FitchNote: NR = Not Rated

Kenya(B+, NR, B+)

Zambia(B+, NR, B+)

Angola(BB-, Ba3, BB–)

Seychelles(NR, NR, B)

Tanzania(NR)

Dem. Rep.Congo(NR)

CAR(NR)

Congo(NR)

Somalia(NR)

Madagascar(NR, NR, B)

Southern Sudan(NR)

Mauritius(NR,Baa2,NR)

Eritrea(NR)

A trend of political stability, strong economic fundamentals and favourable fiscal conditions underpin the ability of key players in Sub-Saharan Africa to access the international capital markets

Sub-Saharan African (SSA) growth has rebounded to 6% post the Lehman-crisis and private capital inflows have recovered to 2002 levels

Fixed income issuance is being driven by (i) strategic (international benchmark setting) initiatives, (ii) long-term funding (for a growing number of infrastructure projects) needs, (iii) increased investor interest and (iv) relaxation of IMF’s external debt ceilings

Issue Date Issuer Description

Sept. 2007 Republic of Ghana US$750 million

Dec. 2007 Gabonese Republic US$1.0 billion

Dec. 2009 Republic of Senegal US$200 million

Jan. 2011 Federal Republic of Nigeria US$500 million

May 2011 Republic of Senegal US$500 million

Oct. 2011 Republic of Namibia US$500 million

TBD Republic of Angola US$500 million (plan)

TBD Republic of Kenya US$500 million (plan)

TBD Republic of Rwanda US$500 million (plan)

TBD United Republic of Tanzania US$500 million (plan)

TBD Republic Uganda US$500 million (plan)

TBD Republic of Zambia US$500 million (plan)

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African Sovereign Performance in the Context of Broader Credit Markets

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250320390460530600

Jun-11 Sep-11 Dec-11 Mar-12 Jun-12

Z-sp

read

(bps

)

Nigeria 2022 Ghana 2017 Namibia 2022

90

120

150

180

Jun-11 Sep-11 Dec-11 Mar-12 Jun-12

bps

DB EM Sovereign Index (USD) Index LeveliTraxx SovX WE OTR 5 Year CDS

Credit Market Performance

African Sovereign Performance

DB Commodities Index Performance

460

500

540

580

620

Jun-11 Sep-11 Dec-11 Mar-12 Jun-12

Inde

x le

vel

Source: Bloomberg, Deutsche Bank as at 19 June 2012

Western European sovereign credit performance has displayed significant volatility over the past year in contrast to EM sovereign credit, which has been quite stable…

SSA sovereign credit spreads have widened, in line with the wider Emerging Markets space

Deutsche BankCorporate & Investment Bank

African Sovereign Performance in the Context of Broader Credit Markets (continued)

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Jun-11 Sep-11 Dec-11 Mar-12 Jun-12

bps

DB EM Sovereign Index (USD) Index Level iTraxx SovX WE OTR 5 Year CDS

Credit Market Performance

African Sovereign Performance

DB Commodities Index Performance

460

500

540

580

620

Jun-11 Sep-11 Dec-11 Mar-12 Jun-12

Inde

x le

vel

Source: Bloomberg, Deutsche Bank as at 19 June 2012

Even though SSA sovereign credit spreads have widened, US benchmark rates have also tightened significantly resulting in modest increase in over all yields

Despite many SSA economies currently relying on natural resources, the recent weakening in commodities has not impacted credit spreads, implying investors’ faith in SSA’s macro-economic ‘story’ 4.5

5.5

6.5

7.5

8.5

Jun-11 Sep-11 Dec-11 Mar-12 Jun-12

YTM

(%)

Nigeria 2022 Ghana 2017 Namibia 2022

Deutsche BankCorporate & Investment Bank

Performance of Other EM Commodity Based Countries

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Credit Market Performance

Source: Bloomberg, as at 21 June 2012

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Jun-11 Sep-11 Dec-11 Mar-12

Z-spread (bps)Z-sp

read

(bps

)

Brazil 2021 Chile 2021 Mexico 2022 Indonesia 2022Russia 2022 Nigeria 2022 Ghana 2017(lhs) (lhs)

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Funding End-Game: Access to the International Capital Markets

An integrated strategy linking all funding sources with development plans / strategy (essential for marketing)

Demonstrate use of funds

Show role of bond financing in funding mix (official and private)

Support of all Stakeholders

Political support at home

Tacit agreement of support from official donor community (as applicable)

Strong track record of economic and fiscal performance:

Debt Sustainability: Prudent debt management practices

Fiscal position: budget and debt

External Accounts: level of debt, debt servicing capacity, current account and capital account balances / compositions

Monetary Policy: inflation, institutional framework

Financial Sector: role in financing growing and challenging investment needs

Economic Growth: rate and quality of growth

Distributional issues: poverty reduction and other social indicators

Availability of information and Transparency

Ratings from International Rating Agencies

Bonds Offer Longer Maturities Conditions for Gaining and Maintaining Bond Market Access

Credit Lines

Trade Finance

Bank Loans

ECA

IFI Funding (Special Projects)

Project Loans

Bonds

Incr

easi

ng D

egre

e of

Fle

xibi

lity

and

Soph

istic

atio

n

Tenor and Liquidity

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Deutsche BankCorporate & Investment Bank

Advantages of an International Bond Offering

Showcase on an International Stage

An international bond offering can be a great opportunity to introduce the sovereign to a global investor base

Presents an opportunity to educate a wide investor base on the sovereign’s credit strengths

Building Strong Investor Rapport

During the marketing process, the sovereign has the opportunity to lay the foundations for establishing long term relationships with international investors across all key financial centres in the world

Build a Yield Curve

Initiates the process of building an international yield curve. Building a liquid yield curve allows sovereigns to access the capital markets easily and frequently in the future

A liquid benchmark is used to facilitate price discovery process of future borrowings by sovereign / domestic credits (regionally as well)

Diversification ofFunding Sources

An international bond offering helps diversify the sovereign’s funding base, and assists in establishing a long term funding source

Permits concessional funds to be focused on projects with high social returns

Positive Ratings Impact Access to the global bond markets could be a positive impetus on bond ratings, and

equity confidence

Allows BudgetaryFlexibility

Allow sovereigns to fund government budget deficits at favourable financing terms

Boosting FX reserves An international bond offering can help increase foreign capital inflows and help build

foreign exchange reserves

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Deutsche BankCorporate & Investment Bank

Ensuring a Successful Bond Offering in the International Debt Capital Markets

The Entire Bond Process typically takes from 8 – 12 weeks (for a 144a / Reg S Transaction)

Documentation Launch and Pricing MarketingStart of the Process Preparation

Select Lead Managers & Finalize and Execute

Mandate Letter

Kick-Off Meeting, hire Counsel and

Agents

Due Diligence Meetings

Prepare Legal Documents, Offering Circular and Marketing Materials

Confirm Ratings & Announce

Transaction,

Roadshow & Bookbuilding

Pricing Final Base Prospectus

printed

Trading and After-

Market Support

Ensure meeting all Conditions for gaining and maintaining Market Access

Establishing an integrated funding strategy, getting support of all stakeholders Strong track record of economic and fiscal performance Ratings from International Rating Agencies

Selecting Experienced Bookrunners

Fixed Income houses with recent and relevant experience of lead managing sovereign transactions in Emerging Markets and in Sub-Saharan Africa

Institutions with a long standing commitment to the Emerging Markets and Africa (by providing secondary market support and research coverage)

Flawless Deal Execution Ensure a timely execution process, with Bookrunners advising and guiding the issuer through the entire preparatory

process:

After-market Liquidity Issue a benchmark sized offering that would ensure ample liquidity in the secondary markets

Maintaining a Dialogue with the International Community

Conduct regular investor meetings to keep the international financial community updated on the latest developments in the country

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Deutsche BankCorporate & Investment Bank

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20-Jun-11 20-Jul-11 20-Aug-11 20-Sep-11 20-Oct-11 20-Nov-11 20-Dec-11 20-Jan-12 20-Feb-12 20-Mar-12 20-Apr-12 20-May-12

Issuance EMBI+ Composite Sovereign Stripped Spread for EMBI Index

Issuance Timing – Taking Advantage of the Right Windows of Opportunity

(LH axis) (RH axis)

Issu

ance

(US

$ m

illio

n)E

MB

I performance (bps)

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Deutsche BankCorporate & Investment BankDeutsche BankCorporate & Investment Bank

Deutsche Bank Team

Maryam Khosrowshahi [PRESENTER]Managing Director Head of CEEMEA Sovereign Debt Capital MarketsTel: +44 (0) 207 547 7896Maryam.khosrowshahi@db.com

Raymond O’LearyManaging Director Head of Africa Sales and Coverage Tel: +44 (0) 207 547 5206Raymond.o-leary@db.com

Faisal KhanVice President CEEMEA Bond Origination Tel: +44 (0) 207 547 3693Faisal.khan@db.com

Deutsche BankCorporate & Investment BankDeutsche BankCorporate & Investment Bank

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