African Local Currency Fixed Income

Mar 2017
 Organisation Structure

CORPORATE
FINANCE

STRUCTURED INVESTMENT
SOLUTIONS MANAGEMENT

MCB CAPITAL
MARKETS

REGISTRY
SERVICES STOCKBROKING

PRIVATE
EQUITY

MCB Capital Markets is the investment banking arm of MCB Group

 African Financial Markets Initiative (AFMI)

• Launched in 2008 by the African Development Bank (AfDB)

• Goal: The African Financial Markets Initiative (AFMI) is an expression of commitment by the African
Development Bank (AfDB) to contribute to domestic resource mobilisation and capital market
development on the continent. Through this initiative, the AfDB seeks to strengthen African economies by
reducing their dependency on foreign currency denominated debt. It also seeks to increase the available
financing options to the African corporate sector and to act as a catalyst for regional market integration.

Activities are implemented through its two pillars:

 The African Financial Markets Database: comprehensive database to provide updated, reliable and
complete information on African domestic bond markets (africanbondmarkets.org)
 The African Domestic Bond Fund: invested in African local currency denominated sovereign bonds
THE CASE FOR AFRICA LOCAL CURRENCY FIXED INCOME
 Botswana

Egypt

Kenya

Namibia

Nigeria

South Africa

Ghana

Morocco

Tanzania

Mauritius

Uganda
Real GDP Growth Rate

Zambia

US

Eurozone

UK

Japan
A o g the o ld’s fastest g o i g e o o ies

2021 Forecast
2016 Forecast

Source: IMF
 Russia Russia

Turkey Turkey

Indonesia Indonesia
India India
Brazil Brazil
Botswana Botswana
Egypt Egypt
Kenya Kenya
Namibia Namibia

Regulatory Quality
Nigeria Nigeria
Government Effectiveness

South South
Africa Africa

Russia Russia
Turkey Turkey
Indonesia Indonesia
India India
Brazil Brazil
Botswana Botswana
Egypt Egypt
Rule of Law

Kenya Kenya
Namibia Namibia
Voice and Accountability

Nigeria Nigeria
South South
Africa Africa
and create stability.
between 2005 and 2015
Corruption Perception Index –

end internal and external conflicts

Governments have worked hard to
With increasing political stability and better managed economies

Source: Worldbank
 Resultant FDI flows

Foreign Direct Investment: Africa

Bond market increasing in breadth and liquidity

Bond Bid/Ask
FX Bid/ask Daily Bond Turnover
(bps)

US 1bps 0.00% $500bn

Germany 1bps 0.03% $20bn

South Africa 1-5bps 0.07% $1.7bn

Egypt 20bps 0.07% $50m-$100m

Nigeria 10-20bps 0.30% $150-$300m

Kenya 5-20bps 0.10% $10-20m

Botswana 10-15bps 0.10% $300k

Namibia 10-15bps 0.10% $300k

Morocco 20bps 0.25% $10-15m

Ghana 20bps 0.13% $10m-$15m

Source: Bloomberg, Barclays, Standard Chartered, Standard Bank

Source: Bloomberg
Leverage and Financial indicators manageable

Source: Trading Economics

 With high yields and a better handle on inflation

Inflation vs Policy Rates

30% 28.1%
25.5% Current Inflation Current Policy rate
25%

20% 18.7%
14.8% 14.0%
15% 13.3% 14.0%
12.0% 11.5%
10.0%
10% 8.2%
5.5%
7.0% 7.0% 6.3% 6.6% 7.0% 6.7% 6.8%
4.5% 4.0% 4.6% 4.3%
5% 3.1% 2.1% 2.3%
1.1% 1.3%
0%
Botswana Egypt Ghana Ivory Kenya Mauritius Morocco Namibia Nigeria Rwanda South Tunisia Uganda Zambia
Coast Africa
Source: Central Banks

Highest Credit Inflation Appears to Have Peaked, Allowing Central

Currency GDP YoY % 10-Yr Bond Yield % Banks Easing Room
Rating
South Africa ZAR 0.70% 8.59% BBB Policy rate expectation
Q3 2016
Easing Neutral Hiking
Egypt EGP 2.30% 16.63% B
Q1 2016 Ghana South Africa US
-2.24% Uganda Ivory Coast Egypt
Nigeria NGN 16.22% Ba3
Q3 2016 Botswana Namibia
Kenya KES 5.70% 13.88% Ba2 Mauritius Nigeria
Q3 2016
Morocco
Namibia NAD -1.00% 10.35% BBB-
Q3 2016 Tunisia
Botswana BWP 4.50% 4.49% A2 UK
Q3 2016
Eurozone
Morocco MAD 1.20% 3.18% BBB- Japan
Q3 2016
Zambia
Ghana BWP 4.00% 19.13% B
Q3 2016
 Current levels look attractive

African currencies have reprised on Local currency bonds offer at

average 37% since May 2013 attractive break-even spreads

Source: Bloomberg, Data as of December 1 2016 Source: Bloomberg, Data as of December 1 2016

With significant diversification benefits to major asset classes

US US Asian US US Asian
Cross Correlation (2014-2016) BADB
Bonds Equities Bonds HY EM Equities
African bonds AFMI Bloomberg Index 1
US Bonds US 10-Yr Treasury -0.22 1
US Equities S&P 500 0.11 0.38 1
Asian Bonds iBoxx ABF Pan-Asia 0.45 -0.21 0.51 1
US High Yield iBoxx USD High Yield 0.39 0.11 0.62 0.59 1
US Emerging Mkt JPM USD Emerging Mkt 0.52 -0.29 0.44 0.75 0.78 1
Asian Equities MSCI Asia ex-Japan 0.22 0.13 0.71 0.81 0.65 0.68 1

Source: Bloomberg, Data as of December 1 2016

AFDB/AFMI℠ BLOOMBERG® AFRICAN BOND INDEX
 (AfDB/AFMI℠ Bloo e g® Af i a Bo d I de
Extract of BADB Index

Source: Bloomberg, as at March 7th, 2017

 (AfDB/AFMI℠ Bloo e g® Af i a Bo d I de

Egypt
Morocco • % in BADB index: 23.39%
• GDP growth rate: 4.5% (4Q 2015) • GDP growth rate: 4.9% (1Q 2016)
• CPI : 2.1% (YoY) • CPI : 28.10% (YoY)
• Policy rate : 2.25% • Yield to Worst: 17.23%
• CTD : 0.19 years

Ghana
• GDP growth rate: 1.1% (3Q 2016 )
• CPI : 13.3 (YoY)
• Policy rate : 25.5%
Namibia
• % in BADB index: 1.03%
• GDP growth rate: 6.0% (3Q 2016)
• CPI : 8.20% (YoY)
• Yield to Worst: 10.26%
• CTD : 3.63 years
Kenya
• % in BADB index: 4.72%
• GDP growth rate: 0.1% (3Q 2016)
• CPI : 6.99% (YoY)
• Yield to Worst: 13.37%
Nigeria • CTD : 0.05years
• % in BADB index: 11.86%
• GDP growth rate: 4.09% (4Q 2016)
• CPI : 18.72% (YoY)
• Yield to Worst: 16.5%
• CTD : 0.52 years
Zambia
• GDP growth rate: 3.6% (4Q 2015)
• CPI : 6.8% (YoY)
• Policy rate: 14.0%

Botswana
South Africa • % in BADB index: 0.55%
• % in BADB index: 58.45% • GDP growth rate: -0.8% (3Q 2016)
• GDP growth rate: 0.2% (3Q 2016) • CPI : 3.10% (YoY)
• CPI : 6.6% (YoY) • Yield to Worst: 4.35%
• Yield to Worst: 9.05% • CTD : 0.03 years
• CTD : 4.49 years
 Strong partners and anchor investors

Foreword from the African Development Bank

The African Development Bank (AfDB) is proposing to invest up to USD 25 million in the African Domestic Bond Fund (ADBF). This
proposed equity participation presents a timely opportunity for the AfDB to improve liquidity in African local capital markets and to
eate a e h a k fo i esto s. This is the Af i a Fi a ial Ma kets I itiati e’s AFMI 2 d pilla , hi h is the Ba k’s esponse for
local currency bond markets development in Africa. It will be an Exchange Traded Fund (ETF) that will aim to track the performance
of the AfDB/AFMISM Bloomberg® African Bond Index, an index composed of African local currency sovereign bonds.

ADBF’s st ategi o je ti es a e to i p o e li uidit i lo al apital a kets a d to eate a e h a k fo i esto s. It ai s to

stimulate the development of African domestic bond markets through the provision of an innovative and efficient product in the
fo of a E ha ed I de Bo d Fu d to oade i esto s’ pa ti ipatio .

The AfDB’s i ol e e t is justified the fa t that the ADBF is full i li e ith 2 of the High 5s, a el I dust ialize Af i a a d
I teg ate Af i a .

The ADBF will accomplish the following additional goals:

(i) Encourage the creation and adoption of African bond indices;

(ii) Create liquidity in those markets the Fund invests in;

(iii) Establish a new financial product on the African continent as the first multijurisdictional Fixed Income ETF on the continent;

(iv) Contribute to the improvement of operational aspects of African bond markets (e.g. settlement systems, data collection and
dissemination etc.) AFMI has already laid the ground work for an information platform - www.africanbondmarkets.org and will play
an important role going forward; and

(v) Increase the pool of sophisticated African fund managers contributing to skills transfer into Africa.
DISCLAIMER

The distribution in certain countries of the information contained in this document may be restricted by law and persons who access it are required to
inform themselves of and to comply with any such restrictions. The information is not intended to be made available to any person in any jurisdiction
where doing so would contravene any applicable laws or regulations. This document does not constitute an offer or solicitation in any jurisdiction in
which such an offer or solicitation is not authorized or to any person to whom it is unlawful to make such an offer or solicitation. This document is
provided for informational purposes only and does not constitute investment, legal, tax or other advice or any recommendation to buy or sell the
securities herein mentioned. Any past performance figures published in this document are not to be taken as a guide to future returns. Indices are used
for comparative purposes only. As is true of any investment in any collective investment scheme, investment in the securities herein is not guaranteed.
The value of the investment may go up as well as down and the investor may not get back his initial apital. I e tai i u sta es a i esto ’s ight
to redeem his investment may be suspended. Investors are not protected by any statutory compensation arrangement in Mauritius in the event of the
Af i a Do esti Bo d Fu d’s the Fu d failu e. P ospe ti e i esto s should seek app op iate p ofessio al ad i e efo e aking any investment
decision. Investments in the securities herein are to be made on the relevant application/subscription forms after consulting the terms and conditions of
the relevant offering document (including but not limited to a prospectus, placement memorandum or similar document in its full or simplified version)
which is available free of charge upon request. The securities described herein are sponsored by MCB Investment Management Co. Ltd, a company
licensed by the Financial Services Commission as a CIS Manager.
APPENDIX
 TEAM TRACK RECORD - MCB AFRICA BOND FUND

111
Performance since inception (as at 28th February, 2017)

106

101

96
MCB Africa Bond Fund (gross)
91
MCB 1-5 Yr Africa Bond Index

86

Statistics Value  Launched in Feb 2014, the MCB Africa Bond Fund
Current yield % 9.62
invests in the local and hard currency African
Effective Duration (Yr) 2.39
Average Maturity 3.27 debt
Number of bonds 31
 The Fund has consistently outperformed its

1 Month 3 Months 2017 YTD Since Inc benchmark since inception (+9.94% vs

Fund (Gross) 3.80% 6.67% 5.01% 8.30% benchmark)

Class A Shares (Net) 3.71% 6.27% 4.75% 3.91%  MCBIM’s risk based process and extensive

Class B Shares (Net) 3.72% 6.33% 4.77% 4.04% research allows it to position actively against the

MCB 1-5 yr Africa benchmark adding significant alpha and providing

3.36% 5.63% 3.36% -1.63%
Bond Index
cushions against beta-led underperformance.
Difference 0.44% 1.03% 1.65% 9.94%
 TEAM TRACK RECORD - MCB INDIA SOVEREIGN BOND ETF

• MCB India Sovereign Bond ETF is the o ld’s first

Exchange Traded Fund to provide international Performance since inception (as at 28th February, 2017)

investors dedicated access to the Indian Sovereign 110

108
Bonds market 106

104

102
• The Fund was launched on 6th June 2016, is listed on 100

98
the Stock Exchange of Mauritius, with MCB Stock
96

Brokers as its market maker. 94

92

• The fund aims to replicate the performance of the

USDINR Benchmark MCB India Sovereign Bond ETF
ZyFin India Sovereign Bond Liquid Index which tracks

the most liquid, fixed rate, INR-denominated bond

issued by the Government of India.