Zambia issues debut Eurobond Zambia has completed its first international bond issue, with demand for outstripping supply as investors continue to seek exposure to emerging market debt. The 10-yearbond was issued on September 13, 2012, priced at 5.625%. The Government t originally planned to raise $500 million, but high levels of interest led it to increase the target to $750 million. Barclays and Deutsche Bank, the joint lead managers and book runners, say they received more than 425 orders worth $12 billion. "The appetite for emerging market debt has been high all year," says John Wright, of the London syndicate team at Barclays. "Investors are increasingly willing to look further afield for what is rare in today's market: strong growth prospects and yield." He adds that the strong order book "enabled Zambia to price well inside initial expectations of low 6%." Zambia joins other recent Eurobond issuers from the region, including Gabon, Ghana, Namibia, Nigeria and Senegal. Buyers from the US took up 56% of the bond issue after an investor roadshow in London, Los Angeles, San Francisco, Boston and New York. The remainder was bought by European investors (40%), Asian (3%) and others at 1%. In terms of sectors, fund managers received 85% of allocations followed by banks with 8%, pension and insurance funds with 5% and 2%. As well as the interest in emerging markets generally, demand was also fueled by Zambia's own buoyant economy, which the IMF expects to grow by 7.7% this year. Zambia's finance minister, alexander Chikwanda, issued a statement on September 14 saying "our expectations have been surpassed" with the issue and hinted more could follow." The development process of Zambia will incline us ever more to seek recourse to the international markets." he said. Standard & Poor's and Fitch Ratings assigned a rating of B+ to the bond, the same as the country's long-term foreign currency rating. a) Differentiate a Eurobond from a foreign bond as per case above. What is the rationale of issuing such type of bonds for the Zambian government? [3 Marks] b) How can we use fixed income investment such as a $750 million Eurobond to measure interest rate risk from an investor perspective? [3 Marks] c) What is the significance of bond ratings done by rating agencies such as Standard & Poor's and Fitch? [2 marks] d) "The appetite for emerging market debt has been high all year," says John Wright, of the London syndicate team at Barclays. Why do you think this was the case in the case of Zambia as per case study? [2 marks] e) Calculate the market value of the Eurobond assuming a coupon rate of 5% and the Yield to maturity of 6% [5 Marks] f) Assuming the data in part (e) above holds, compute the Macaury's duration of the bond and explain what the figure means in relation to interest rate risk Management? [10 Marks]