By Rosemary Mirondo
Dar es Salaam — The government has started another process to issue of the Eurobond of $700 million to fund infrastructure projects.
Several attempts have been since 2008 without success.
Eurobonds are corporate or government bond issued offshore, outside the regulations of the issuing country and denominated in a currency other than that of the issuer's country.
Typically issued in bearer form by non-European institutions for sale in Europe, Eurobonds usually have a fixed final maturity (often 10 to 15 years) but some are perpetual.
Bank of Tanzania economist Genes Kimaro said the initial process to get rating was not finalised but the process had started.
He said that the rating process had encountered a number of challenges especially in acquiring a rating agency.
He noted that, in the initial process, the government had appointed Citibank Group of the UK as a transaction advisor, but no rating agency was found.
"A rating agency is important because it ensures we get a fair deal and our bonds are not undersubscribed."
The rating agencies commonly used include Fitch, Standard & Poors and Moody's.
University of Dar es Salaam economics professor Delphin Rwegasira said normally credit rating takes time to look at performance of the economy.
He noted that this time around, Tanzania is ranked among the fastest growing economies attributed by among other things resourced base gas which could be an advantage for the country when being rated.
However he noted that the government needed to clear its domestic arrears being owed by contractors, teachers otherwise it would create a bad image when being rated.
"The government needs to show that it can pay its internal debts for it to get good rating."
He said the government needed to target an appropriate time when global interests are down because if it delays the interest rates might increase.
According to him, the Eurobonds are important for the government at this time when it is in a process of constructing the standard gauge railway and expanding its infrastructure.
The government's pursuit of the Eurobond has been a long-drawn out affair. It was expected to be issued in the 2012/13 financial year.
The plans, however, shelved in the wake of shocks caused by the global economic crisis.
Last year, Tanzania said it planned to start opening up its capital account to enable it to attract more investments, starting with its
East African Community (EAC) partners before reaching out to the rest of the world by 2015.
Rwanda became the first EAC nation to raise money through a Eurobond, when it raised $400 million last year. Kenya has also raised $2 billion through a Eurobonds even as the proceeds were reportedly utilised for the benefit of some corrupt officials within the government.