Chris Kay
Sub-Saharan African nations outside South Africa are selling $7 billion (R63.4bn) of debt this year, more than in the past five years combined, as yields more than double those of US treasuries lure investors repelled in the past by violence and corruption.
With the International Monetary Fund (IMF) forecasting growth in sub-Saharan Africa to outpace all regions except emerging Asia this year, eight nations from Nigeria to Kenya have sold or plan to offer record amounts of bonds overseas.
Average yields on African debt have fallen 88 basis points in the past 12 months to 4.35 percent, against 1.75 percent for 10-year treasuries, according to JPMorgan Chase.
Africa is captivating bondholders as governments take advantage of record-low interest rates to fund infrastructure projects, such as the construction of roads, railways, ports and hydroelectric plants.
Policymakers are seeking to reduce reliance on donor aid by improving tax collection and diversifying their commodity-dependent economies.
“It’s a hugely exciting story,” Goldman Sachs Asset Management chairman Jim O’Neill said last month. “The only thing one has to be a little bit careful of are many of those markets are still very undeveloped and suddenly there’s a lot of people around the world regarding Africa to be sort of fashionable and trendy.”
Nigeria was planning to offer $1bn of eurobonds this year and a $500 million diaspora bond, Minister of State for Finance Yerima Ngama said in February.
Kenya expected to sell sovereign bonds by September, raising as much as $1bn, Finance Minister Robinson Githae said in March.
Maiden eurobond
Tanzania has enlisted Citigroup to help it get a credit rating before issuing a maiden eurobond of at least $500m by the end of the year. The country had attracted $2.5bn of bids for a private offering of $600m in debt in March, Finance Minister William Mgimwa said at the time.
Angola was planning to sell $2bn this year after a $1bn private sale last year, VTB Bank chairman Andrey Kostin, who helped arrange the first issuance, said in October last year, after meeting President Jose Eduardo dos Santos.
Uganda and Mozambique might sell foreign-currency bonds of more than $500m each over the next few years, Moody’s Investors Service said in a report last October.
“We see significant potential in Africa,” Moody’s sovereign analyst Kristin Lindow said on Friday. “Investors’ search for portfolio diversity as well as yield contributes to high demand for initial offerings from issuers in a frontier region with demonstrated growth potential.”
While sub-Saharan Africa is getting a fresh look from investors, 11 nations in the region count among the 25 most corrupt of 174 countries measured by Transparency International. Nigeria and Kenya rank 139th, Angola 157th and the Democratic Republic of Congo 160th. Nigerian central bank governor Lamido Sanusi said in March that the country remained plagued by corruption.
Eurasia Group senior Africa analyst Mark Rosenberg said last month: “The current conditions of a lot of liquidity out there is not going to last forever, but these political risks, that are there and perhaps being under-appreciated, are not going away. There are headwinds in all these countries. When the money dries up the risks will still be there.”
Ivory Coast defaulted on dollar bonds two years ago after former leader Laurent Gbagbo refused to cede power to Alassane Ouattara.
Zambian President Michael Sata fired the governor of the central bank and its board, reversed a foreign takeover of a bank and halted mineral exports within two weeks of taking office in September 2011.
“For governments, great, don’t look a gift horse in the mouth,” Renaissance Capital global chief economist Charles Robertson said last month. “I still don’t believe investors are getting risk-adjusted returns in the dollar-bond space.”
Zambia and Nigeria are still dependent on single commodities for government revenue. Qua Iboe, one of Nigeria’s main export grades of crude oil, has declined 13 percent since reaching a 10-month high in February. Last month copper, which accounts for 80 percent of Zambia’s export income, posted its biggest monthly decline since May last year.
Yields on Zambian bonds due in September 2022 have jumped 0.2 percentage point this year to a record 5.66 percent on Friday.
Legislators are seeking to lift immunity from prosecution against former president Rupiah Banda, who is accused of abusing his authority, a charge he denies. Zambia aimed to borrow $1bn overseas this year, Deputy Finance Minister Miles Sampa said last month.
While rates for Zambia have been rising, yields for benchmark dollar-denominated debt issued by Nigeria, Gabon, Ghana, Ivory Coast, Namibia, the Congo, Senegal and the Seychelles have declined this year.
Yields on Nigeria’s $500m of dollar debt due in 2021 have fallen 274 basis points since its January 2011 sale to 4.05 percent on Friday, down from a peak of 7.3 percent in October 2011.
Ghanaian issue
Ghana, which had seen yields on its $750m of eurobonds due in October 2017 fall 343 basis points to 4.82 percent since their October 2007 issue, planned to sell more than $1bn in dollar debt this year, two informed sources said.
Borrowing costs on Gabon’s $1 billion of dollar bonds due in December 2017 have fallen 478 basis points to 3.13 percent since their December 2007 sale.
Rwanda raised $400m in a debut eurobond last month, at a 6.875 percent coupon.
Seven years ago the World Bank and IMF began cancelling $37bn of debt owed by the world’s poorest countries.
Debt forgiveness plans have helped 45 African nations cut debt to about 42 percent of gross domestic product this year from an average 120 percent in 2000, according to IMF estimates. – Bloomberg