Zambia's debut $750 million, 10-year Eurobond rose on its first day of official trading on Friday after becoming sub-Saharan Africa's most successful bond launch with bids worth more than 15 times the amount on offer.
The issue on Thursday from Africa's top copper producer was sold at a yield of 5.625 percent and carried a coupon of 5.375 percent. The total order book was $11.9 billion, the finance ministry said on Friday, underscoring investors' huge appetite for rare, high-yielding African assets.
“This is not only the largest order book for sub-Saharan Africa, but also at 5.375 percent the lowest coupon, meaning the most favourable price,” Zambian finance minister Alexander Chikwanda said in a statement seen by Reuters.
The yield fell to 5.2 percent on Friday, bringing it close to Ghana's 2017 Eurobond, currently yielding 4.8 percent, and analysts said it could decline further.
Zambia and Ghana are rated B+ by Fitch. However, Zambia has a B+ rating from Standard and Poor's, compared to B for the west African gold, cocoa and oil producer.
Proceeds from Zambia's Eurobond, which will be eligible for the JP Morgan EMBI Global Index, will be used to upgrade its infrastructure, particularly in the road and energy sectors.
Though analysts and investors had expected the bond to be oversubscribed, the size of the order book came as a surprise. They said it testified to the strong appetite for scarce African paper and resurgent risk appetite after the European Central Bank announced a bond buying plan last week to aid struggling euro zone members.
“It's a reflection of the amount of liquidity that's now available in the advanced economies,” said Yvette Babb, emerging markets analyst at Standard Bank. “The QE programmes that have been undertaken in Europe and the US have contributed to a large amount of dollars that are in search of yield.”
She added that Zambia's low public debt levels, a current account surplus and strong foreign direct investment inflows were also compelling to investors.
While Zambia's dependence on copper, which accounts for about 77 percent of exports, was a concern, its strong fundamentals could support the bond in the future, she added.
The IMF forecasts GDP growth of 7.7 percent this year and inflation has fallen to around 6 percent from more than 30 percent in 2000.
“There could potentially be some upside in the Zambian bonds,” Babb said.
Stuart Culverhouse, chief economist at Exotix, said many investors had become familiar with Zambia whose domestic bond market is open to foreigners.
“A lot of investors have been comfortable with the local market and I think recognise some of the strengths of Zambia,” he said. “For a lot of people it's a sound, robust story.”
Namibia's debut $500 million Eurobond, issued last October, was oversubscribed five and a half times, while Nigeria's January 2011 offering of the same size was two and a half times oversubscribed.
The order book for Ghana's $750 million bond, launched in 2007, was nearly $3 billion.
Ghana was the first sub-Saharan African country other than South Africa to issue an international bond. Since then, it has been joined by Gabon, Senegal, Ivory Coast, Congo Republic, Nigeria, Namibia and now Zambia. - Reuters