International law firm Simmons & Simmons has advised BNY Mellon Collateral Management as Custodian and Collateral Manager for the Liquidity and Sustainability Facility (LSF) inaugural transaction. The LSF, designed by the United Nations Economic Commission for Africa (ECA) in collaboration with African Export-Import Bank (Afreximbank), announced at COP 27 it has concluded its inaugural repo transaction with Citi for an amount of US$100 million. This innovative transaction, with funding support from Afreximbank, seeks to bring the benefits of a well-developed repo market to the African continent, with the goal of enhancing the liquidity of a diversified basket of Sovereign Eurobonds. The inaugural transaction under the facility was entered into last Friday 11 November.
The LSF was designed by the United Nations Economic Commission for Africa, in collaboration with Afreximbank, with the dual objective of supporting the liquidity of African Sovereigns Eurobonds and incentivizing SDG-related investments such as SDG and green bonds on the African continent. It is estimated that the LSF has the potential to reach US$30 billion to support sovereign African Eurobond liquidity and ensure debt sustainability in the region.
The LSF's objective is to compress liquidity premiums and improve sovereign access to international bond markets for African countries through the creation of a deeper repo market for the region. Repurchase agreements (repo agreements) allow market participants to access funding by exchanging bonds for cash in transactions that are typically considered to be ultra-safe. The LSF benefits from an innovative and scalable legal platform on par with international standards which aims to address the African continent’s specific Eurobond issuance and liquidity needs.
The facility also aims to encourage the issuance of green bonds or sustainability-linked bonds by Africa governments, by offering investors favourable terms for using them as collateral in repo transactions. Currently, the share of sustainability-linked bonds issued in Africa and the Middle East represents less than 1 per cent of the global total amount.
The Simmons team advising on the deal was led by partner James Grand, supported by managing associates Marcin Perzanowski, Katia Anysiou and Igor Zyskind.
To read the full press release from the LSF, please click here.