What defines a true emerging markets bank

  • Dipping a toe here and there in Asia or Africa
  • Standard Bank would argue that it’s moreover getting involved in projects in one of the toughest markets possible – Afghanistan. And that’s exactly what it’s done. Rupert Sayer reports.



When Standard Bank Plc in London led a US$10mn commercial tranche of financing for Afghan telecoms company Roshan in July, it was a historic moment. The tranche, part of a multisourced facility in union with various development institutions and National Bank of Pakistan as the other commercial bank lender, is the first ever cross-border private sector loan to Afghanistan from a variety of leading multilateral institutions and commercial banks. The loan will significantly enhance Roshan’s network coverage for Afghanistan.


The commercial tranche formed part of an Asian Development Bank (ADB) led facility. ADB has committed US$35mn, France’s Proparco US$10mn, and Germany’s DEG US$10mn. While DEG and Standard Bank are providing loans to Roshan for the first time, the loans by the ADB and Proparco are second round loans being made by these financial institutions to Roshan. The first loans, in May 2005 from ADB and Proparco were for a combined US$45mn and involved Alcatel with €33mn, who later sold its portion on to Standard Bank. This financing supported the sale of telecoms equipment to Roshan.


For the latest deal, the ADB is providing political risk guarantees for the final two years of the commercial bank tranche.


The loans from the development financing institutions (DFIs) have a tenor of six years, while the commercial lending runs for five years.


Most commercial institutions would shy away from Afghanistan but there were several factors that influenced Standard to get involved and stay with the deal. Not least were the solid foundations of Roshan itself. The firm is the leading GSM mobile provider in Afghanistan and is owned by an international consortium made of The Aga Khan Fund for Economic Development (AKFED) – 51%; Monaco Telecom International (MTI), a subsidiary of Cable and Wireless – 36.75%; and MCT Corp – 12.25%.


Commercial launch of the network began on July 27, 2003. By August Roshan had over 850,000 subscribers representing some 60% of the total. Coverage extends to 38% of the total population in over 57 cities and a total of over 150 including towns, in 27 provinces.


In February 2005, Roshan won the ‘Best Marketing Award’, announced at the mobile industry’s leading annual event, the 3GSM World Congress 2005, in Cannes, France.


GTR has exclusively spoken to Standard Bank’s John O’Mulloy and David Locking about the deal.




Q. How would Standard Bank come across opportunities in a country like Afghanistan



A. It would normally come from a corporate client looking to export, or an institutional client in the country seeking to raise funding.




Q. And, in this case, had you been marketing in Afghanistan



A. No, we were approached by Alcatel who had supplied equipment to Roshan, the leading mobile operator.




Q. Why would Alcatel approach Standard Bank for a country some way from Africa



A. Whilst it is true that Standard built its telecoms business in Africa, we recognised in the late 1990s that the skills learned in difficult emerging markets could be utilised elsewhere. We had hired people with longstanding relationships with many of the equipment suppliers and, at the time, Standard’s lack of exposure to the telecoms sector in developed markets was a competitive advantage.


Eastern Europe and the former CIS were a particular focus for the bank in this period and it was there that we first broke into business for the suppliers and the operators.




Q. It’s still a long way to Kabul.


A. Half way up the Silk Road, but since then the bank has expanded so much in Asia and Latin America, Russia, Turkey, and Dubai, the telecoms business is now set up globally. We have six years of track record in difficult emerging markets and with Alcatel, and other suppliers, it would be quite unusual if they did not ask us to look at something like this.


Grahame Brown, head of trade and project finance in Alcatel has said: “We were pleased to have the support of Standard Bank in Afghanistan and found their approach refreshingly commercial and balanced. Our cooperation on this project has led to a number of other joint efforts in emerging markets.”




Q. Many banks would surely just say ‘no’ to any suggestion of the country risk.


A. That is true, but we are dedicated to emerging markets only, and to have a process which declined a transaction because there is no country limit in the box would be inappropriate.


Where we are confident of our industry expertise be it telecoms, natural resources, financial institutions or agribusiness and so on, we also focus on getting first mover advantage where relationships can be built that last a long time.


We also have a reputation with the investor community that has a positive view of Standard bringing new borrowers to market, so we can view this type of transaction as liquid and look to do more.




Q. What factors impacted the decision to go ahead



A. All of the above, with the Alcatel relationship and track record were important. But moving on, the due diligence process focused on Roshan specifically, and the ownership involvement of the Aga Khan Fund for Economic Development (AKFED) which we felt provided a very credible enhancement to the company and its ability to deliver on its business plan.


Additionally, the Aga Khan Development Network (AKDN) has been involved in a host of social developmental activities in Afghanistan for many years and before Roshan commenced operations.


AKFED is also active in areas in which we have experience in Africa, and the time they spent with us discussing the set up and outlook for the company was highly credible to us and encouraged us to move forward.


Roshan had, in early 2005, raised financing from both the Asian Development Bank and Proparco and this demonstrated to us, as linkage to the international effort in Afghanistan, that Roshan’s role was recognised and important to those efforts.


With Roshan’s growth plans approved by the shareholders this gave us the further opportunity to work jointly with these institutions, and DEG, to provide the expansion financing.


Standard arranged and led the commercial tranche of this facility at the same time syndicating a portion to other commercial banks.


Karim Khoja, chief executive officer of Roshan, has said: “We are very pleased to be working with Standard Bank on this second round of financing. Bringing in a commercial bank into the financing is a first for Afghanistan. We have been impressed with the approach taken by Standard Bank and their openness to understand the business and the issues faced in Afghanistan. The fact that a commercial bank has come to Afghanistan obviously helps us in our growth plans, but more importantly, by taking such a risk, will open the doors for other banks to invest in Afghanistan, which will lead to faster growth in telecoms and other sectors.”




Q. So then Standard Bank just provided the financing



A. No, once we had clearance from credit and country risk, this would always be dependent on local due diligence.




Q. So you travelled to Afghanistan



A. We would never do a deal we don’t travel to. From the many trade finance experiences of disasters the market has had in the last 20 years, not seeing a deal with your own eyes would probably be the top lesson learned. Obviously in this case there is comfort through the involvement of both AKFED and a highly reputable supplier, but it is just an unbreakable rule. So the team travelled three times.




Q. British Airways



A. Actually no. Ariana Afghan Airlines, which is interesting because their colours are blue and white, like Pan Am’s were. In the 1960s, we are told Kabul was Pan Am’s operational centre for Asia, which gives you some idea of the history of the country which we have all forgotten about during the intervening years of little access.


It was an old Indian Airlines Airbus we probably used to fly Bombay-Calcutta in the 1980s. But it was absolutely fine.


It is of little help to the international effort in Afghanistan to simply ban their airline for safety reasons, as subsequently happened. Flight access is a piece of the development of a country. The decision is at odds with the military and development effort. They should make the European airlines start flying there, hopefully hiring Afghan pilots – as the descent over the mountain range and approach into the bowl in which Kabul is situated bears some resemblance to landings at the old Kai-Tak Airport in Hong Kong.




Q. What was the focus of the trips and what was the result in your approval process



A. Well, we were able to spend an intense time with the Roshan team. As we have previously experienced in dealing with AKFED, this convinced us that the quality of staff dedicating their widely differentiated experience to this effort was simply exceptional. It is a highly motivated group of people, a very high morale operation, driven by the common desire to bring about positive change and to be at the forefront of the country’s development.


We were able to see, first hand, the detail of the roll out on the ground which ultimately proved highly convincing for our credit committee.




Q. How do they integrate with the local population



A. That is the essence of the morale – the people are inextricably dedicated to making, and keeping Roshan Afghan. This is itself an extraordinary achievement given the history and culture of this country. The most impressive presentation was by the local sales managers handling remote provinces. The most impressive visit was to the call centre, entirely staffed by locals with Roshan’s commitment to having and retaining a minimum of 25% female staffing very obvious.




Q. Has the bank not had second thoughts since booking the deal



A. No, we predicted that at the time we visited, the claimed involvement of UK troops for reconstruction support rather than military involvement in the south would not be realistic.


At the same time, Blair and Chirac’s wives were in town opening the first clinic to perform heart surgery on Afghan children in 15 years, and Madame Chirac visited the medical facilities that the AKDN has set up.


It was also obvious that the international funding programme to support the farmers substituting poppy production with other crops was having difficulties. Once you are on the ground, it is very clear, and that was taken into account when we did the deals.


Roshan is an outstanding company and we are focused on providing them with sensible commercial banking support for their growth. Standard will continue the same theme, in Afghanistan, Africa and other emerging markets.