Ivory Coast Tempts Foreign Investors

(Bloomberg) -- Why pay the government of Germany to hold onto your money if you can get yields upward of 5% on euro-pegged debt in West Africa?

That’s the message the region’s biggest French-speaking economy, Ivory Coast, is trying to get across as it fine-tunes processes to make it easier for foreign investors to buy its local-currency debt.

The bonds of the West African Monetary Union’s eight members are issued in the CFA Franc -- the convertibility of which is guaranteed by France -- at yields that often exceed 5.5% for one-year debt and more for longer-dated securities. That compares with 1.47% for three-year bonds of Greece, the highest-yielding sovereign in the euro area, and negative rates for German bunds.

Administrative Burden

While foreigners are legally permitted to hold the bloc’s securities, administrative burdens have made it difficult to attract offshore interest. By contrast, foreign investors hold almost half the securities with maturities of two years or longer that were issued in 2018 by neighboring Ghana, which is not a member of the union and has a floating currency.

But the situation may change soon.

One offshore investor took part in Ivory Coast’s May 27 auction of one-year securities as a “test run” for broader participation in future, said Kadi Fadika-Coulibaly, chief executive officer of brokerage Hudson & Cie, which is a primary dealer for the country’s debt. Moody’s Investors Service rates Ivory Coast’s debt at Ba3, or three levels below investment grade, on par with Turkey.

‘Few Bumps’

It went well even though “there were a few bumps,” said Fadika-Coulibaly. The biggest obstacle is the lack of a deferred payment allowance, compelling participants to finalize payment in the morning after an auction, she said.

“With international investors in an auction, the payment might come a little later than it’s due,” she said. “As a primary dealer, we can request with the state to have a deferred payment for up to seven days.”

Ivory Coast is among the continent’s fastest-growing economies and has expanded at an average annual rate of more than 7% since 2012. Its government and others in the region are increasingly reliant on debt funding for infrastructure development to sustain growth. For 2019, it budgeted for 2.4 trillion CFA francs ($4 billion) in debt, of which it wants to raise more than half on the local market.

The country has sold three euro-denominated bonds since 2017 at coupons ranging from 5.125% to 6.625%.

--With assistance from Moses Mozart Dzawu.

To contact the reporters on this story: Leanne de Bassompierre in Abidjan at ldebassompie@bloomberg.net;Andre Janse van Vuuren in Accra at ajansevanvuu@bloomberg.net

To contact the editors responsible for this story: John McCorry at jmccorry@bloomberg.net, Robert Brand, Hilton Shone

©2019 Bloomberg L.P.