Angola, Unfazed by Market Havoc, Plans $3 Billion Eurobond
Angola, Unfazed by Market Havoc, Plans $3 Billion Eurobond
Angola, whose dollar bonds are trading at distressed levels following the global risk sell-off, said it’s planning to raise as much as $3 billion in a Eurobond sale to help finance a budget deficit expected to widen as the plunge in oil prices cuts government revenue.
A presidential decree dated March 18 authorizes Finance Minister Vera Daves de Sousa to appoint banks to manage the sale, without giving details on the timing. The country’s existing $8 billion of dollar debt is held mostly by European and U.S. investors, with Alliance Bernstein LP, BlackRock Inc. and Aviva Plc among the biggest holders, according to data compiled by Bloomberg.
A sale in the immediate future is unlikely to be successful in the current market environment, according to investors including Aberdeen Standard Investments and Federated Hermes.
Yields on 2025 Eurobonds of Africa’s second-biggest oil producer soared 1,649 basis points since the beginning of March to 23.52% amid plunging crude prices and the spread of the coronavirus. The average spread of Angola’s dollar bonds over U.S. Treasuries is 1,645 basis points, well above the 1,000 that many investors consider to be the threshold for debt to be classed as distressed.
“It’s not credible, full stop,” said Kevin Daly, a London-based money manager at Aberdeen, which holds Angola bonds. “What Angola should be talking about is tapping the International Monetary Fund emergency funding vehicle and speaking with China in order to close what will be a much larger-than-expected financing gap given the collapse in oil prices.”
Angola, which depends on oil for more than 90% of export revenue, is set to revise its economic forecasts for this year because of the crisis, Lourenco said in a speech to his party on March 13.
The country on Wednesday announced it was closing its land, air and sea links from Friday for two weeks because of the pandemic. The restrictions don’t apply to the transport of goods and essential services.
The southwest African nation’s economy is expected to grow 1.8% in 2020 after shrinking for four straight years, according to the country’s unrevised budget, which is based on an average oil price of $55 per barrel. Brent, a benchmark for Angola’s crude, traded at $25.72 a barrel as of 4:35 p.m. in London, recovering from a near 17-year low of $24.52 on Wednesday.
“It’s highly unlikely they can come to market,” said Mohammed Elmi, a London-based money manager at Federated Hermes, which has $575 billion under management. “The credit story is leveraged to oil and with no respite in oil price declines, it just puts more pressure on them.”
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