The Republic of Senegal Issues Debut 144A/RegS Benchmark Sovereign Bond

Senegal, 10 May 2011

On Friday, May 6th the Republic of Senegal issued its debut 144A/RegS benchmark sovereign bond. The US$ 500 million 10-year new issue carries a coupon of 8.75% and is rated B1 by Moodys and B+ by Standard & Poors.

This new issue for the Republic of Senegal is only the fifth benchmark sovereign bond to come to market from Sub Saharan Africa (ex RSA). Standard Bank and Standard Chartered served as Joint-Bookrunners on this landmark transaction.

In conjunction with the new issue, Senegal offered note holders of the Republic's existing US$ 200mn RegS Eurobond due in 2014 to exchange all outstanding notes for new 144A/RegS notes. In addition, Senegal sought the consent of 75% of the existing note holders to allow the Republic to amend the terms and retire all 2014 notes.

Exchanging the illiquid 2014 bond for an index eligible 144A/RegS benchmark dramatically re-positions Senegal in the international bond market.

During the marketing process for the new bond, the Minister of Economy and Finance for the Republic of Senegal, Mr. Abdoulaye Diop, led a delegation which included members of the Finance Ministry, the Treasury and the BCEAO, the regional central bank, on an extensive 8-day investor roadshow to New York, Boston, Los Angeles, Zurich, Geneva and London.

Investor interest during the transaction roadshow was strong, particularly from leading institutional investors which, due to liquidity requirements for new investments, did not participate in Senegal's prior US$200mn Eurobond offering in 2009.

Following positive investor feedback, the Joint-Book runners released price guidance to the market on the morning of Wednesday, May 4th for a yield of "9.25% area." Investor interest grew quickly over the following two days with the order book totalling US$ 2.4bn by Thursday afternoon. The strong investor response allowed the Joint-Book runners to price the transaction at the tight end of price guidance at midday on Friday with a reoffer yield of 9.125%.

The pricing for the new transaction compares favourably to the secondary market pricing of Senegal's prior Eurobond which traded with a spread to US Treasuries of 675 bps with 3.5 years remaining when the new transaction was announced. By comparison, the new transaction was able to achieve a spread to Treasuries of 596 bps and at the same time extend Senegal's sovereign credit curve in the international market by 6.5 years.

The order book for the new issue was of exceptional quality and included over 125 leading US, European and Asian institutional investors. Fund managers and asset managers accounted for the vast majority of the investors in the new bond with a 89% allocation. Banks were allocated 5% of the new issue, insurance companies 4% and private banks 2%. The transaction also achieved a broad geographic representation of investors with UK accounts allocated 37% of the new issue, US 30%, continental Europe 29% and Asia 4%.

A critical challenge of this transaction was to ensure the success of the exchange. The Joint-Lead Managers were able to source US$ 155mn of the existing US$ 200mn bond and thereby achieve the 75% threshold of acceptance by investors to enable Senegal to retire its existing RegS Eurobond. The Joint-Lead Managers believe that a consent solicitation of this type for an Emerging Market sovereign bond issuer has never previously achieved this level of success.

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