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UPDATE 1-Gabon to issue new Eurobond, buy back portion of 2017 issue

Tosin Sulaiman
Monday, 2 Dec 2013 | 10:20 AM ET

* Capital to go towards transport, power sectors

* Sets minimum yield of 6.125 pct for new Eurobond

* Gabon debt seen less attractive than Nigeria, Angola

JOHANNESBURG, Dec 2 (Reuters) - Gabon plans to raise at least $500 million via a new 10-year Eurobond to fund infrastructure investment and will buy back up to $140 million of its 2017 Eurobond, according to a preliminary prospectus seen by Reuters.

The mineral-rich central African nation was one of the first sub-Saharan countries to make its debut on the dollar-denominated debt market when it issued a $1 billion Eurobond in 2007 with an 8.2 percent coupon. Others that have followed since including Nigeria, Cote d'Ivoire, Zambia and Rwanda.

Gabon, rated BB- by Fitch and Standard and Poor's, has nearly $875 million of the 2017 bond outstanding and is offering to buy $140 million of that for cash.

It will also offer investors the opportunity to exchange any or all of the remaining amount for the new issue. Its aim is to extend the maturity profile of its debt and to reduce its borrowing costs.

International bond issuance by African sovereigns has reached a record high $8 billion this year, according to a report by Moody's published in October, as countries seek cheaper sources of funding for infrastructure projects.

Many African Eurobonds have been oversubscribed by investors seeking high-growth markets and looking to diversify their portfolios away from the developed world.

While Gabon's exchange offer is seen as attractive for existing note holders, Samir Gadio at Standard Bank said that new investors may favour Nigeria or Angola.

"Frankly if you had to make a choice between the three oil producers in sub-Saharan Africa with Eurobonds, it wouldn't be Gabon on a yield-adjusted basis," Gadio said on Monday.

Gabon made a late payment on its Eurobond coupon in June 2012 after a dispute with a South African company that had frozen bond payment funds via a court order, but avoided falling into default.

It was the second time Gabon was forced to delay payouts to bondholders, following a previous case in 2008.

INFRASTRUCTURE DEVELOPMENT

Proceeds of the new bond will be used to fund infrastructure projects in the transport and power sectors, the prospectus said. Those include development of a bypass road and a dam and completion of a road connecting the capital Libreville with the city of Franceville.

The projects are part of the government's public investment programme begun in 2009 to diversify the economy away from oil, which accounts for 40.5 percent of Gabon's GDP.

The country's resource wealth and small population of about 1.6 million mean it has one of the highest per capita incomes in sub-Saharan Africa, but inequality is high and large numbers of people remain mired in poverty.

The IMF projects GDP growth of 6.6 percent in 2013 and 6.8 percent next year.

The 2017 bond, issued to fund a buyback of old Paris Club debt, is currently trading with a yield of around 3.5 percent.

Gabon set a minimum yield of 6.125 percent on the upcoming Eurobond, according to a government notice. The deadline for the exchange offer is 1000 GMT on Dec. 4., it said.

An investor roadshow will end in the United States on Wednesday and the bond could be issued towards the end of the week.

Citigroup, Deutsche Bank and Standard Chartered are the lead managers.