African Eurobonds Set for 2021 Comeback After Missing Rush

Africa’s notable absence from the rush to sell Eurobonds this month is set to change as the largest economies on the continent prepare to tap the market during the first half of 2021.

Zambia’s default may make investors look more closely at riskier issuers, though it won’t necessarily lock countries such as Ivory Coast, Nigeria and South Africa out of the market, according to Standard Bank Group Ltd.

“We haven’t seen any undue signs of stress in secondary-market trading in recent weeks,” said Javier Penino Vinas, head of debt capital markets at Standard Bank in Johannesburg. “The market is ready and waiting for more supply, and would welcome a trade from some of the more frequent issuers from the region.”

Developing nations including Mexico, Russia and China have tapped international debt markets in recent weeks to lock in lower borrowing costs as they recover from the economic impact of the coronavirus pandemic. The average yield on emerging-market dollar bonds fell to a record low this week, according to Bloomberg Barclays indexes.

African Eurobonds Set for 2021 Comeback After Missing Rush

There has been no Eurobond issuance from sub-Saharan Africa since before the pandemic, with a number of African nations relying on funding from multilateral lenders such as the International Monetary Fund. Ivory Coast, Ghana and Nigeria have said they may tap international markets, while South Africa has also budgeted for foreign sales.

That was before Zambia missed a $42.5 million coupon payment on one of its Eurobonds last week, triggering a default after bondholders rejected the southern African country’s request for a six-month interest freeze while it restructures its debt.

“We do not expect the rest of sub-Saharan African credit to be affected by this development,” said Samir Gadio, the London-based head of Africa strategy at Standard Chartered Plc. “That said, investors will likely pay even more attention to dynamics in other distressed or high-yield SSA names.”

Chinese Loans

One of those is Ghana, which is planning to issue at least $3 billion of Eurobonds in the first quarter.

“More challenged African sovereigns, such as Ghana, are likely to need a significant strengthening of their fiscal position” to support demand for Eurobond issuance, said Mark Bohlund, a senior credit research analyst at REDD Intelligence.

Edward Botchway, chief financial officer at Ecobank Ghana Ltd., said the issues facing Ghana and Zambia are miles apart.

“The first is the quantum of exposure in Zambia to Chinese loans and their impact on the economy,” he said in an interview from Accra, the capital. “The temperature of their economy is different -- Ghana has shown it is able to manage its economy fairly well.”

In Ethiopia, where government forces are in a war against a dissident region, any accusations of human-rights transgressions could cut budgetary support from the World Bank, said REDD’s Bohlund.

The Ethiopian conflict may raise the political risk premium for other countries with a history of ethnic tensions.

That would be the case in neighboring Kenya if signs of strain emerge ahead of the East African nation’s elections in 2022, according to Patrick Curran, a senior economist at emerging-markets research firm, Tellimer.

©2020 Bloomberg L.P.

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