In 2008 Tower Aluminium Group Limited (“Tower”), the largest manufacturer of aluminium roofing in West Africa, financed a new factory with USD denominated bank loans. In late 2008, as the full impact of the global financial crisis hit Nigeria, the Naira devalued by c 25% against the USD. Tower’s revenues are mostly in Naira and the impact of the devaluation was to significantly increase the cost of servicing its USD financial liabilities. The viability of the expanded business was thus impacted severely.
Tower recognised the need to diversify away from relying on the bank market and decided to refinance its USD liabilities by issuing a 7 year Naira denominated corporate bond, thus enabling the company to also reduce its currency risk and extend the tenor of its debt. Tower was however unable to secure the “A” local rating required to be able to access local pension funds, key investors in the Nigerian corporate bond market. GuarantCo was able to use its local AAA rating in Nigeria to credit enhance Tower’s bond issue, thereby making it eligible for pension fund investors. This was the first time such a structure had been used in Nigeria and there were many regulatory and procedural challenges which could not have been overcome without GuarantCo’s patient developmental approach.
GuarantCo’s support for Tower has had a strong demonstration effect, helping build further capacity in the embryonic Nigerian capital markets. It has also stretched the tenor to 7 years from the typical 5 years for previous corporate bonds, which is a crucial step toward meeting the requirements of future infrastructure related bond issues where longer tenor is essential.
Following a request for assistance, GuarantCo is also working with the Nigerian Securities & Exchange Commission to set up training and mentoring of their staff. Tower produces aluminium roofing, a component of low cost housing. It offers advantages over steel roofing, lasting 5 times longer, at prices affordable to low income families in Nigeria and other parts of West Africa