VZCZCXRO4024
PP RUEHMA RUEHPA
DE RUEHDK #0813/01 1921728
ZNR UUUUU ZZH
P 101728Z JUL 08
FM AMEMBASSY DAKAR
TO RUEHC/SECSTATE WASHDC PRIORITY 0800
INFO RUEHAD/AMEMBASSY ABU DHABI PRIORITY 0058
RUEHRB/AMEMBASSY RABAT 0853
RUEATRS/DEPT OF TREASURY WASHDC
RUEHLMC/MCC WASHDC
RUEHZK/ECOWAS COLLECTIVE

UNCLAS SECTION 01 OF 02 DAKAR 000813 
 
SIPDIS 
 
DEPARTMENT FOR EBB/IFD/ODF, A/EPS AND AF/W 
ABU DHABI FOR TREASURY/GRIFFERTY 
TREASURY FOR RHALL AND DPETERS 
 
E.O. 12958: N/A 
TAGS: EFIN ECON EINV PGOV SG
SUBJECT: SENEGAL'S JUNE BOND ISSUANCE FALLS SHORT 
 
REF:  A. 07 DAKAR 1379 
   ¶B. DAKAR 661 
 
DAKAR 00000813  001.2 OF 002 
 
 
¶1.  SUMMARY:  On June 19, Senegal's Ministry of Finance launched two 
treasury debt products through the regional central bank.  The 
result was disappointing for the government, with only USD 155 
million purchased out of the total issuance of USD 238 million.  The 
GOS is planning to use this revenue to help cover arrears totaling 
approximately USD 357 million owed to private sector contractors and 
suppliers.  This is the first time that Senegalese Treasury Bonds 
have not been fully subscribed, raising new concerns about country's 
ability to attract investors.  Questions have also been raised about 
the regional market's liquidity.  Senegal's Minister of Finance 
initially blamed a local bank for not keeping its promise to 
purchase the bonds, but the President of Senegal's banking 
association called the Minister's actions "illegal" for predicting 
the results of the offering before its issuance.  END SUMMARY. 
 
SENEGAL GOES TO THE MARKET BUT COMES UP SHORT 
--------------------------------------------- - 
¶2.  On June 19, under the auspices of the West African Central Bank 
(BCEAO), the GOS launched a CFA 40 billion (USD 95 million) Treasury 
Bond offering and CFA 60,000 (USD 143 million) in debenture 
obligations.  Two days before the offering was made public, Finance 
Minister Abdoulaye Diop expressed optimism and declared that he had 
received commitments from financial institutions to purchase as much 
as USD 257 million in bonds.  In the end, however, the issuance was 
not entirely successful; the Treasury bonds were fully purchased, 
but the debenture instrument sold only CFA 25 billion (USD 60 
million).  No doubt the Minister was expecting that GOS debt 
products remained as popular as in the past.  Last year a Senegal 
issuance of approximately USD 100 million in Treasury Bonds was 
quickly oversubscribed (Ref A). 
 
¶3.  Diop expressed surprise at the weak response, and claimed, "This 
is the first time we have witnessed a negative result from a bond 
issuance."  He admitted that his ministry had solicited support from 
local banks before the issuance.  Diop went so far as to name and 
blame the Compagnie Bancaire de l'Afrique de l'Ouest (CBAO), which 
is controlled by the Moroccan Attijari Bank, of not meeting its 
pledge, "despite the strong commitment of [the bank's] General 
Manager." 
 
A WEAK DEMAND OR A MORE SERIOUS INDICATOR? 
------------------------------------------ 
¶4.  Abdoul Aziz MBaye, the President of Senegal's Bankers' 
Association, who is also the General Manager of Attijara Bank, was 
quick to criticize Minister Diop.  He noted that it is "illegal" for 
the Minister to publicly announce that he had consulted with the 
financial institutions to obtain purchase commitments before issuing 
the bonds.  According to MBaye, Senegal must better organize the 
timing of its bond issuances since many WAEMU countries were issuing 
bonds at the same time.  According to MBaye, the region is facing 
diminished liquidity, and the GOS can no longer assume that the 
purchase of its government debt is a priority for regional financial 
investors. 
 
¶5.  Following the poor results of the debenture instrument, there 
was much speculation in the press on whether the GOS is losing 
credibility in its management of public finances, especially after 
recent public criticism by the IMF Resrep and revelations of the 
government's huge arrears in payments to the private sector (Ref B). 
 In response, Minister Diop was defensive and uncharacteristically 
bellicose:  "our government is not bankrupt.  A State which can 
collect CFA 90 billion (USD 214 million) a month in revenues, pay a 
monthly wage bill of CFA 30 billion, and commit CFA 60 billion for 
its operating budget cannot be bankrupt."  MinFin Diop minimized the 
disappointing bond operation, stating, "I need only to collect two 
days of revenues to pay my internal debt. Our financial situation is 
under control." 
 
COMMENT 
-------- 
¶6.  Despite Minister Diop's positive spin, the undersubscribed 
issuance is another in a string of blows to Senegal's public 
finances.  It is still not clear how the government will pay its 
overdue bills, which is a key requirement of its Policy Support 
Instrument with the IMF.  Companies are complaining publically, but 
are being drowned out by the broader populace, which is demanding 
relief from rising food and energy prices.  Even though a number of 
WAMEU countries were issuing similar bonds at the same time, Senegal 
could, in the past, count on its offering to be the top priority for 
the region's financial institutions.  We are also concerned that the 
lack of response indicates a significant decrease in liquidity for 
banks in the region from just one year ago, potentially adding to 
 
DAKAR 00000813  002.2 OF 002 
 
 
the difficulties faced by the private sector to find reasonable 
financing for capital investments. 
 
   SMITH