The cloud is Liquid: an insight into how ‘Microsoft Offerings’ charged a Liquid Telecoms dollar bond

How Liquid Telecoms is connecting Africa with fiber networks.

LIQUIDITY is a term that we commonly use in financial parlance to define the ability to convert assets into cash or near cash. However, there’s another technological asset that has earned usage of the word liquid: – ‘the cloud’. The invention of the USB, hard drives or servers facilitated storage of data in large quantum but still had a limit. Servers can be costly because corporates have massive volumes of data they process everyday which needs to be backed up in storage. With the cloud solution corporates needn’t worry about how much data they can store because the solution is limitless. The cloud brings a cost effective solution that allows corporates and individuals to pay for just what they need. Microsoft offers a wide range of cloud products that range from an e-mail O-365 solution to Azure that allows for file sharing and management. The future us here and this information is pricing -into corporate bonds for cloud solution Telecom company’s rendering their performance – bullish.

The Liquid Telecommunications Africa Bond

Liquid Telecommunications (Ba3/B+ by Moody’s and Fitch) leading independent data, voice and IP provider in East, Central and Southern Africa made a successful $USD550 million debut in the international corporate debt & capital markets with Standard Chartered, Citibank and Standard Banks acting as joint book runners and lead managers on 07 July 2017. The bond is running for 5 yrs maturing 2022 and was priced at 8.5% (655 bps or 6.55%) above 5 yr US treasuries guaranteed by Liquid Telecommunications Holdings Limited and most of its subsidiaries. The issuance and healthy appetite evidenced the growth potential the African telecoms industry, which is said to be the least penetrated.

Also raised was, a $USD150 million term loan bringing the total credit offering to $USD700 million. The deal provided a new price discovery platform for Liquid Telecommunications. The data provider paves the way for other technology giants that may wish to raise capital on the international capital markets, to finance continental expansion.

“We are pleased with the strong support and interest Liquid Telecom has received internationally. We launched into a challenging market, and have attracted investors of high quality – many of whom are investing in African high yield bonds for the first time. This is a significant achievement for an African tech company.” Commenting on the offering, Nic Rudnick, Liquid Telecom’s Group CEO said.

How Microsoft charges Liquid Telecoms 2022 bond and made the cloud liquid

Liquid Telecommunications Africa bond performance to date as extracted from Bloomberg.

Liquid Telecommunications Africa bond performance to date as extracted from Bloomberg.

From the time the Liquid Telecoms 2022 bond was issued in July 2017 credit spreads have narrowed 87 bps or cents from highs of 468 bps above 5 yr US treasury to 388 bps. The rally in bond yields represents the confidence bond holders have in the cloud computing future Liquid Telecoms and Microsoft are bringing to Africa. Credit Spreads measure the counterparty default risk premium above the benchmark reflecting what the price of the asset should be.

What Liquid Telecom had under its sleeves was a partnership deal with Microsoft in 2017. The two joined forces to improve and accelerate the use of cloud services across Africa: – news that offshore markets priced-in to demonstrate bullish bond performance as show in the Bloomberg graph above. This is aimed at boosting the continent’s access to world-class software. Microsoft’s long-term strategic vision is to enable affordable broadband access to its customers to empower business and increase productivity. To move this objective forward, Microsoft is collaborating with Liquid Telecom, a Pan-African telecommunications provider that operates the region’s largest independent fiber network, which spans over 50,000 km across (12) countries. In all this Zambia is strategically positioned from a routing perspective facilitating connectivity to other African nations.

Data Centers in Johannesburg and Cape town in 2018

Microsoft will in 2018 set up data centers in Africa in two cities of Cape Town and Johannesburg South Africa. This will bring Microsoft in close proximity with its major clients i.e. Southern African corporates and this move should deal latency issues. The world is moving onto smarter e-mail solutions such as Office – 365 (O-365), better file sharing modes and constantly changes Information Technology security features which Microsoft offers excellent solutions.

What the Liquid Telecoms 2022 bond is signalling?

Healthy book orders for the bond last year plus a yield of 8.81% (658 bps above 5 yr treasury) was a remarkable achievement. This pricing was lower than Angola (2025) and Mozambique Tuna Fish (2023) Euro-bonds yet rating at par with Ivory Coast and Senegal, slightly better than Zambia, Nigeria and Kenya’s credit rating.

A few pointers the bond could be signalling are:

  1. Opportunity for credit extension through term loans to cloud computing and data service providers that may wish to expand regionally and across the entire continent. This sector is immune to seasonality compared to agriculture and mining;
  2. With sanguine appetite for technology corporate bonds out there we can forecast a liquid market for them and more price rally’s just like what is being observed in tech stocks in the US where Apple, Google, Microsoft’s and Alphabet. Caution is however given as such hype tends to overprice instruments causing bubbles in the long term;
  • There’s definite scope and latitude for the L.T bond price to rally due to demand for data and cloud computing services. This will be exactly like after effects of an IPO of a very attractive stock;
  1. More tech players will come to the corporate debt markets for expansionary funding in the near to medium term. Future pricing will reference of the secondary market activity driven by demand;
  2. More fintechs may wish to test the depth of the corporate debt waters which will always have appetite. The LT bond issue was an eye opener and has kept many thinking;
  3. Markets are also signalling the pricing in of governmental regulatory frameworks such as licensing and Africa in general awakening to the need to embrace technology as a driver in Sub Saharan economic growth. More and more African nations are coming to the party as they realize most things they did previously can now be done by clicking one button;
  • Markets are also signalling the foretasted opportunities for mechanization, production efficiency, cost managing techniques and more partnerships with data service providers to reach all corners of the contingent.
  • For most nations in Africa, the LT bond shows that the corporate bond market is not dead, there’s still some pulse;
  1. Tighter and firmer regulatory scrutiny in light of the increased cyber-attacks and vulnerabilities should be expected in this sector. Internet data is indeed the new oil.

Liquid Telecom is majority owned by – Strive Masiyiwa’s – Econet Wireless Global.

Mutisunge Zulu is an economist with over 13 years experience in debt, capital and financial markets across Africa. He is also a member of the Economics Association of Zambia and Institute of Directors. He holds  a Master of Science Degree in Accounting and Finance and is an Econometrics PHD student.