African governments have issued $8 billion (R80bn) worth of foreign bonds this year, the highest level ever, according to Moody’s Investors Service.
Moody’s senior analyst Aurelien Mali identified the issuers as Egypt (which carries a Caa1 credit rating with a negative outlook), Ghana (B1 stable), Nigeria (Ba3 stable) and South Africa (Baa1 negative), and one debut issuer, Rwanda.
Of these countries, only South Africa has an investment grade rating while the others are speculative grade.
Mali said South Africa would benefit from the increased activity, as the country would be “the hub for funding the many projects” involved.
He noted that the African Development Bank already used South Africa to channel a third of its lending to Africa for certain projects because it was the only country in the region to have “really sophisticated capital markets”.
According to Moody’s, 14 out of the 54 African countries have issued foreign currency bonds on global markets.
“With the exception of Tunisia and Morocco, which issued international debt in the 1990s, and South Africa, which has a highly developed domestic capital market, sovereign issuances in Africa actually started in 2001 when Egypt issued its first bond,” Moody’s noted.
“International issuance started even more recently when Seychelles issued its first euro bond in 2006, followed in 2007 by Congo, Gabon and Ghana,” Mali said.
“There is significant potential for Africa to increase use of international capital market finance in the medium to long term.”
And he noted: “According to available data, the region’s bond issuances since 2011 have been oversubscribed by an average multiple of six.”
He predicted that Senegal (which is rated B1 stable) would also return to international markets by the end of the year.
“In addition, Moody’s has identified six countries in sub-Saharan Africa that it believes will issue inaugural bonds in the international markets within the next few years: Angola (Ba3 positive), Cameroon, Kenya (B1 stable), Tanzania, Uganda and Mozambique (B1 stable).
“Most of these countries are planning to raise at least $500 million each, which will make them eligible to be included in JPMorgan’s emerging market bond index. This will not only help raise their visibility with a larger pool of investors, but will set a benchmark yield for local corporations and banks that wish to issue internationally.”
Mali said Namibia and Botswana had investment grade ratings but were not likely to issue bonds soon.
Moody’s estimates macroeconomic growth in Africa will average 5 percent to 6 percent over the next five years, “which will sustain investors’ interest for the region”.
They key reason for issuances has been to finance infrastructure projects, according to Moody’s. “And we expect that the rising trend in sovereign issuances will continue for the foreseeable future because of the region’s substantial infrastructure needs.”
Moody’s noted that sovereigns had other sources of external financing such as multilateral or bilateral lending, as well as commercial loans.
“As such, Moody’s considers that funding via international debt securities to finance a portion of infrastructure needs will likely remain a limited portion of gross capital inflows to the region.”