A new African sovereign bond exchange-traded fund has launched with up to $250 million in commitments. Its backers are betting it can help unlock a much bigger market for African sovereign debt and help reduce borrowing costs.
Managed by Legal & General, the ETF tracks an African sovereign bond index created by S&P Dow Jones Indices and the Afreximbank-backed Liquidity and Sustainability Facility (LSF). An ETF is a pooled investment that trades like a stock, in this case giving institutional investors diversified exposure to African dollar-denominated government bonds.
“We want to enable a secondary market for African debt,” Vera Songwe, LSF founder and a former head of the UN’s Economic Commission for Africa, told Semafor, adding that greater liquidity could reduce the premium that investors demand — and ultimately lower governments’ borrowing costs.
The market needs to reach roughly $1 billion to achieve the critical mass needed to deepen trading, according to Songwe. The UK Foreign, Commonwealth & Development Office is providing seed capital for the fund.