African countries, just six of them, since January 2019 have raised $17.7 billion from Eurobond issuance, the second-largest on record. But chances are pretty high that total issuance in the continent by 2019-end may not surpass the all-time high of $28.4 billion seen last year.
Total African sovereign Eurobond issuance has been on the upward trend since 2016 when a combined $9.7 billion was raised. It almost doubled to $16.5 billion in 2017, rising further to $28.4 billion in 2018, according to data by emerging markets-focused investment bank, Renaissance Capital.
But analysts do not envisage an upward trend this year.
“It may not match up to 2018 level due to factors like trade tensions which could affect investment decisions by companies,” said Tosin Ayanfulu, a fixed income analyst at Lagos-based Zedcrest Capital.
According to Ayanfulu, slowing global growth and monetary accommodation of major central banks have prompted investors to adopt a wait-and-see approach because they are taking long-term decisions. “The possibility of a further cut in Feds rate will make them wait the more.”
In the nine months through September 2019, Egypt, Benin Kenya, Ghana, Tunisia and South Africa issued foreign currency debt notes comprising a total $14.1 billion and £3.2 billion. So far, 21 African nations have issued sovereign Eurobonds in US dollars and euros, with maturities of about 30 years.
In 2018, a sizeable fraction of total issuance occurred in the first quarter largely due to dovish stance of most apex banks in developed economies at that time.
“The fourth quarter is historically dull for new issuances. We might not see more than two issuances in the next quarter” said Yinka Ademuwagun, a research analyst at Lagos-based United Capital Plc.
“Most African countries are already focusing on 2020 budget. It is in first quarter when a new administration starts and budget is passed that they will decide where to go to get funds.” Ademuwagun added.
On his part, Gbolahan Ologunro, a research analyst at Lagos-based CSL Stockbrokers, attributed the reduced Eurobond issuance among African nations do change in monetary policy stance of US central bank which has raised bets on further downward adjustments in global interest rates.
“Emerging markets might be seeking to maximize the tapering of refinancing risk associated Eurobonds, given the moderation in global yields. Hence they will prefer to hold off on further issuances to allow the US Feds continue with its ‘hawkish’ rate cut will enable them to issue Eurobonds at a lower cost compared to 2018,” he said.
After a strong rebound in the first half of 2019 from a harsh 2018 characterized by massive capital flows reversals from emerging markets, African Eurobonds market saw mixed performance in the third quarter, according to a report by Renaissance Capital.
The continent’s most-developed economy, South Africa, issued a twin-tranche $5 billion Eurobond towards the end of September, with $2 billion and $3 billion maturing in 2029 and 2049 respectively. But better sentiment helped it borrow cheaper at 5.73 percent coupon (for September 2019) compared to the previous 30-year Eurobond issued last year at 6.30 percent.
Tunisia made way into the markets mid-July to issue 7-year £700 million at 6.38 percent coupon, more expensive than a similar amount of 7-year euros issued February 2017 at a coupon of 5.63 percent.
No Eurobond matured in full in the third quarter although South Africa and Kenya repaid Eurobonds in the first half of 2019, bringing the number of African nations that settle obligations to 11.
A Eurobond is a special type of bond issued in a currency that is different from that of the country or market in which the bond is issued.
Private organizations, international syndicates and even governments who are in need of foreign currency borrowings for a specified duration find Eurobonds suitable for their needs.
While Rwanda, Cameroon, Morocco and South Africa did best with average yields dropping slightly as prices for their Eurobonds increased, Tunisia, Angola, Egypt, Ghana, Kenya, Nigeria and Namibia all saw their average yields increase.
Average yields of African Eurobonds have dropped to 6.1 percent by September from 7.6 percent. Also, the average additional premium gained for investing in African Eurobonds above risk-free assets like US treasury bonds rose by 50 basis points to 4.9% points of yield from 4.4% points.
Nigeria has not issued Eurobond since this year as it has showed preference for bilateral loans from international agencies. The last time the country raised dollar-denominated debt notes was in November 2018 when it raised $2.8 billion to finance budget deficit.
Israel Odubola & Bunmi Bailey
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