Benin Reaps Lowest Cost Yet With Africa’s First Social Bond
Benin has taken advantage of an ethical-debt boom to sell Africa’s first social bond in international markets, raising money that will be used to broaden access to potable water in the nation of 12 million people.
Strong demand for the sale of 500 million euros ($591 million) -- investors placed orders for more than twice the amount -- will encourage other African issuers, such as Ghana, which is planning to issue social bonds to refinance debt spent on widening free secondary education.
Benin, a leading African cotton producer, sold the bonds due in 2035 at 511 basis points above the mid-swap rate, compared with 531 it paid on 700 million euros of 2032 debt in January. That makes it the cheapest euro debt yet issued by Benin.
“It’s strange that we are the first in Africa to go for a social bond, because the social issues this type of bond seeks to address are mainly faced by us,” Benin President Patrice Talon told Bloomberg in an interview Thursday in the Ivorian commercial hub, Abidjan. “In theory, that’s all we should be issuing.”
The use of social bonds has boomed since the coronavirus pandemic, yet so far only a few sovereign issuers have sold them, including Chile and Ecuador. Benin’s sale helped the ethical boom to smash a new record, with more than $800 billion in bonds and loans with ESG labels sold in 2021, surpassing the previous all-time high for the entire year.
The West African economy’s issuance comes as the fallout from the virus has strained budgets across the continent, threatening social spending. A lack of money to provide relief to businesses and populations and a dearth of vaccines have left their economies disproportionately vulnerable, compared with more industrialized nations which responded to the crisis with massive fiscal packages and large vaccine orders.
Benin, which wants all its people to have access to potable water by 2026, will use part of the proceeds to broaden access from 70% today, said Talon, who was re-elected in an April election marred by protests and the disqualification of his strongest rivals.
Talon’s administration will focus on human development over the next five years, he said, with an emphasis on revamping the education system and investing in healthcare in the country.
“We need to take advantage of these financing opportunities because the terms are a bit better than the alternatives,” Talon said before the issuance had priced.
©2021 Bloomberg L.P.