Zambia bond

By Kevin Daly, Aberdeen Asset Management

Africa is set to be a focus of the International Monetary Fund (IMF) and World Bank’s agenda at meetings next week. But observers need to be discerning: for too many the temptation is to think of Africa as one entity (or even country, if you are certain US politicians). This is frustrating for Africans. It is downright foolish for investors.

The 54 nations of the African Union speak over a thousand languages, are home to over a billion people and hold vast quantities of natural resources. Most maps, based on Gerardus Mercator’s 1569 projection, do not help by distorting land masses which gives the impression Africa is roughly the same size as Greenland.

It is in fact 14 times larger and easily large enough to fit China, India, the USA, Japan and a slew of European countries inside its land mass. The differing attitudes towards adversities suffered by Zambia and Ghana present a lesson in the continent’s contrasts. Read more

When a country cuts power to its aluminium smelters so its people can watch the World Cup on TV, you have to conclude that its economic policy isn’t all about investing for the future.

Ghana this week called in the International Monetary Fund after a depreciation in its currency threatened to turn into a rout. The episode is an excellent illustration of the injunction to be careful what you wish for, in this case Ghana’s discovery of oil. Its fellow minerals exporter, copper-rich Zambia, has also called in the IMF.

The two nations have become object lessons in how easy outside financing and high but volatile export prices give countries enough rope to strangle themselves. Their experience is unlikely to be a bad as similar countries in previous decades, but it still represents another chapter in the sad history of resource-dependent economies going wrong. 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

Sometimes you get lucky – the International Finance Corporation certainly did when it picked Thursday to launch its first local currency bond in Zambia.

As the US Federal Reserve confounded analysts by announcing that it will keep its quantitative easing programme steady at $85bn a month, prompting a rally in emerging market assets, the private sector arm of the World Bank issued a $150m ($28.5m) kwacha-denominated note at 15 per cent. The four-year “Zambezi” bond is the first issued by a foreign organisation in Zambia’s domestic market, and will raise money for IFC’s local operations, officials told beyondbrics. Read more

Announcements of new bond issues have been coming thick and fast out of Zambia this year, and the government’s Road Development Agency is the latest to get in on the act.

According to Bloomberg it plans to issue $1.5bn of debt to international investors later this year. Ambitious, certainly – will it work? Read more

Zambia seems determined to keep itself in the frontier debt market headlines. Following its heavily over-subscribed 10-year $750m debut eurobond issue in September, other organisations want in.

December saw state energy company, Zesco, announce plans to tap international markets for up to $2bn. Lusaka city council followed with plans for a $500m municipal bond issue to fund new housing, and this week deputy finance minister Miles Sampa told Bloomberg that the towns of Solwezi and Livingstone would be next. Read more

Zambia is not normally considered a part of the international sovereign debt investment landscape, but it made a stir back in September with a massively oversubscribed debut eurobond issue. Now the city council of the capital, Lusaka, is seeking to build on the success with its first municipal bond this year. Read more

Spain may not be Uganda, as its premier Mariano Rajoy undiplomatically exclaimed in a text to his finance minister earlier this year. According to bond investors, it is Zambia.

The Republic of Zambia this week sold its maiden 10-year dollar-denominated bond, raising $750m from international investors. Funds swamped the deal with orders of about $12bn, allowing the country to price the bond at a yield of just 5.625 per cent. Spain’s 10-year bond yield is currently 5.78 per cent. Read more