Africa bonds

By Neville Mandimika, Atria Africa

Since Ben Bernanke suggested that the US Federal Reserve was starting to consider slowing down its asset purchase program (QE), markets have been trying to price this in. The difficulty has always been in the timing of the ‘lift-off’ as the Fed has insisted that it all depends on the data. Read more

By Juergen Braunstein, London School of Economics

Sovereign Wealth Funds (SWFs) could easily resolve Africa’s infrastructure funding issues, or go a long way toward doing so. So why are they so hesitant toward investments in Africa and what are the chances for change?

There is no lack in money. SWFs are keen to diversify into real assets with long-term growth prospects – ample opportunities for which exist in many parts of Africa.

Indeed, if SWFs – large state owned investment funds – were to steer a mere 1.3 per cent to 1.5 per cent of their total assets into sub-Saharan Africa, they could close the region’s infrastructure deficit over the coming years. Read more

By Ben Payton, Maplecroft

Africa’s booming economic performance over the past decade has seen GDP growth jump from an average of 2.5 per cent a year in the 1990s to 6 per cent a year since 2000. Asia’s insatiable demand for raw materials and the subsequent commodity price hikes have spawned an array of costly extractive projects on the continent, and investment and consumer demand are on the rise.

However, a growing reliance on borrowing, combined with the downturn in commodity prices points to a deteriorating outlook for many of the continent’s key growth markets in the medium term. Read more

African dollar bonds are increasingly gaining mainstream acceptance as the continent’s brisk economic growth and low interest rates in the developed world help buoy demand for high-yielding debt.

The size of Africa’s dollar-denominated debt market, not including South Africa, is now more than $20bn, accounting for 6 per cent of JP Morgan’s EMBI index. In sub-Saharan Africa, issuance of international sovereign bonds hit a record $6.9bn this year, with offerings from Kenya, Ivory Coast, Senegal, Ghana, Zambia and South Africa.

But amid the excitement over Africa’s growing role in international capital markets, some are beginning to question just how healthy the dollar borrowing spree is. Read more

President Obama’s US-Africa Business Summit in August drew a top-notch group of African heads of state, business leaders, financiers, and ministry officials.

But did the event bring in new potential investors? Some, but not enough. Rooms were full of familiar faces during our three days in Washington DC, but many US companies and investors still say “it is too early for Africa: the continent is too dangerous, and markets are too small”.

We think this approach — often based on anecdotes or media articles instead of fact-based research — actually elevates risk rather than mitigating it. Read more

African countries have been issuing bonds at a furious pace: the value of foreign currency sovereign bonds issued so far this year has already overtaken last year’s total (see chart below). That has raised concerns that they are vulnerable to tightening by the US Federal Reserve, which could result in cash being pulled from EMs.

But analysts tend to think African bonds will withstand changes to monetary policy in the US, with yields holding steady. Read more

Uganda is not, after all, jumping onto Africa’s sovereign bandwagon.

The East African country, a perennial candidate in the continent along with Ethiopia and Algeria to issue dollar-denominated debt, not only says that it is not ready to debut in the global capital markets but has also warned others about the dangers.

Emmanuel Mutebile, governor of the central bank, told The East African newspaper that African countries should “not be complacent about the dangers of big projects built on sovereign debt”, adding that African countries would “never again get debt relief”. Read more

Senegal is days away from launching sub-Saharan Africa’s biggest sukuk, with the CHF100bn ($208m) bond expected to receive strong investor demand and create further momentum for sovereigns and banks in the region to offer Islamic financial products.

After concluding an investor roadshow on Friday, Senegal is due to end the bookbuilding process for its debut Islamic bond on July 18. The four-year instrument, which has an annual 6.25 per cent profit margin, is targeted at banks and institutional investors in the eight member West African Economic and Monetary Union (WAEMU), though it is also open to international investors. Unlike conventional bonds, sukuk do not pay interest, which is forbidden under Islamic law, but grant investors a share in an underlying asset. Read more

Following Nigeria's example?

The International Monetary Fund’s “Africa Rising” conference opened in Maputo with gushing descriptions about the “potential” and “opportunity” of the fast growing continent.

IMF chief Christine Lagarde, the guest of honour, told the gathering of politicians, aid workers and business types that “we are witnessing a moment of transformation in Africa.” Former US President Bill Clinton joined in via video to talk of Africa’s “remarkable economic progress.”

Yet intertwined with the unabashed bullishness were warnings about the potential potholes that line the road ahead, especially for those nations endowed with rich reserves of the natural resources that have been driving much of the continent’s heady growth. Read more

Ivory Coast prime minister Daniel Kablan Duncan expects a sovereign bond planned by his country to come to market in July. He talks to Javier Blas about his financing plans and the challenges facing Africa.

Two African countries – Senegal and South Africa – are just months away from issuing sukuk, or Islamic bonds, seeking to attract cash-rich Middle Eastern and Asian investors to finance their large infrastructure programmes, Islamic finance bankers told a meeting of the African Development Bank.

The move represents a potentially significant boost for the profile of Islamic finance in Africa. Until now, Gambia and Sudan have been the only countries on the continent to issue a sukuk – and they were only for tiny sums. Read more

The Zambian kwacha has been one of the weakest currencies against the US dollar this year, losing more than 8 per cent of its value against the world’s reserve currency during the past month alone.

Source: Thomson Reuters

 Read more

The discovery of oil and a rising consumer class had investors positive about Ghana’s growth story, holding up the west-African country as one of the frontier markets to invest in. But the recent broad sell-off in EMs has changed the mood about the country and exposed a slate of problems in need of resolution.

Source: Thomson Reuters

 Read more

Kenyan officials are on a round of investment meetings in London to discuss the country’s debut eurobond, pegged at $2bn, says the central bank. But market volatility is proving a nuisance and Kenya could be forced to delay the much-anticipated bond.

On Tuesday, analysts at Fitch Ratings said in a teleconference in London that the issue was unlikely to take place before April. Those remarks contrast with those of Kenyan officials, who reportedly said on Monday they were going ahead with plans to issue this month. So, is it going to happen? Read more

Tapping bond markets is something of a trend for many African countries in the past year, including Gabon this month with a $1.5bn 10-year eurobond priced to yield 6.375 per cent.

But selling long-term debt is proving a hard game in east Africa, despite the presumable attractions of political stability and a favourable business environment. Interest costs for government securities are high, with long-term instruments maintaining yields of about 10 per cent or more, creating a growing concern for central banks. Read more

Gabon joined the year’s rostrum of sovereign African eurobond issuers on Thursday with a 10 year “soft bullet” issue of $1.5bn priced to yield 6.375 per cent.

It follows comparable landmark issues over the past 15 months from Zambia, Rwanda, Nigeria and Ghana. So how does it stack up? Read more

African growth is soaring away, as anyone who has looked at the IMF figures can tell you. Meanwhile, governments are able to tap the international debt markets, as investors are still willing to snap up bonds from established and first-time issuers.

So credit ratings should be on the up too, shouldn’t they? If debt is backed by growth, doesn’t credit risk decrease? Not so fast, says Standard and Poor’s. Read more

What do you do when you get downgraded by a major credit rating agency, citing deteriorating government finances and macroeconomic policies that “could deter investment”?

Issue more debt! Or at least that’s the possible plan from Zambia, once a credit darling issuing a eurobond at 5.75 per cent (cheaper than Spain, as everyone noted at the time), but now rated just ‘B’ by Fitch after a downgrade on Monday. That’s the same level as on-the-brink Ukraine, and just one notch above Greece, Egypt and Argentina. Read more

Florian von Hartig of Standard Bank

With nearly two months of the issuance calendar remaining until year end, African sovereign issuers have raised nearly double the amount of funding ($6.35bn) in the eurobond market compared to 2012.

While still representing a sliver of the total EM sovereign issuance in cross-border capital markets, African sovereigns – both seasoned and first-time issuers – are offering international fixed income investors a compelling investment case when confronted with insipid recovery and low rates offered from developed markets, lingering peripheral eurozone debt woes, and overall weariness towards undifferentiated traditional EM sovereign plays. Read more

Less than three years since civil war erupted in Ivory Coast it’s back to business as usual. Growth rates are now among the highest in Africa and the west African nation is set to return to international capital markets as it looks to finance infrastructure projects and pay off debt. Read more