Failed Bond Sales Signal Funding Strains for African Governments

(Bloomberg) --

The coronavirus pandemic is complicating funding in local capital markets for governments in sub-Saharan Africa, with a spate of failed bond auctions testimony to the risk-averse environment.

Zambia, Ghana and Zimbabwe failed to find buyers for targeted amounts of debt, while South Africa had to turn down some offers at a sale of inflation-linked securities. The AFMI Bloomberg Africa bond index, which tracks the performance of local bonds of key economies including South Africa, Ghana and Zambia, has slumped 15% this month amid the global sell-off of high-yield debt. That has increased borrowing costs at a time when governments are weighing fiscal responses to shield their economies.

“Right now cash is king and dollar cash is king,” Stephen Bailey-Smith, a Kolding, Denmark-based investment strategist at Global Evolution, said by phone. “Everybody is concerned that there’s going to be a funding squeeze and people are going to be nervous about investing in risk assets.”

• On Thursday, Ghana could place barely 50% of a 1 billion cedi ($171 million) target for a five-year bond offer.
• Zambia’s sale of 1.1 billion kwacha ($64.2 million) of bonds the same day attracted bids for less than half that amount.
• A week earlier, Zimbabwe could not find buyers for more than half of its Z$200 million of 180-day treasury bills.
• On Friday, South Africa sold just 745 million rand ($42.7 million) of the 1.04 billion rand of inflation-linked bonds on offer, rejecting bids of 520 million rand deemed to expensive.

“We have policy makers across the globe trying to find liquidity to keep things going for households, companies and governments,” Bailey-Smith said. “This is set to complicate funding possibilities for sub-Saharan Africa from portfolio sources until we get outside of coronavirus.”

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