Kenya, Nigeria, Senegal, Ghana, South Africa and Egypt raised a total amount of $14.7 billion in the first five months of the year compared to the $18.0 billion raised in the whole of 2017, according to a report by the Cytonn Investments team.
The Report is a bold and authoritative weekly research report by the Cytonn Investments team that provides reliable market insights for investors interested in the high-growth East Africa region.
It seems that most African economies are opting for Eurobonds as a preferred form of raising external debt, as opposed to pursuing commercial and syndicated debt from international financial institutions.
“This just shows how increased investors’ interests are in high yielding assets across emerging and frontier market. This euphoria might have slowed on the back of improving interest rate in the US. African countries rising debt via Eurobond now may have to pay higher cost assuming the same country risk premium subsist,” Ayodeji Ebo, MD of Afrinvest Securities limited said on phone.
A Eurobond is a special type of bond that is issued in a currency other than the issuer-country’s home currency. Since it is issued in a foreign currency and its target investors are foreigners, it is considered one way that a country can raise foreign pubic debt.
Egypt raised the highest Eurobond of $4.0 billion followed by Nigeria ($2.5 billion), Senegal ($2.2 billion) and South Africa ($2 billion). Ghana and Kenya on the other hand raised $2 billion each. Out of these six countries, five are Sub Saharan (SSA) countries which are Kenya, Ghana, South Africa, Nigeria and Senegal which raised a total of $10.7 billion Eurobond.
SSA countries seems to have positioned itself as an attractive investment destination as seen by the improving macroeconomic conditions. A recently released Regional Economic Outlook report by the International Monetary Fund (IMF) in April 2018 projected SSA’s GDP growth to rise to 3.4 per cent in 2018, up from 2.8 per cent in 2017, supported by higher commodity prices and improved capital markets access.
In March 2018, Senegal issued two Eurobonds of 10-year and 30-year tenors, at coupons of 4.8 per cent and 6.8 per cent. This was 2.5 percentage points and 1.5 percentage points lower than Kenya’s February 2018 issue with similar tenors. The issue was 4.5x oversubscribed with bids received worth $10.0 billion, against a target of $2.2 billion.
In February 2018, Nigeria managed to raise $2.5 billion through the issue of a 12 and 20-year Eurobond at yields of 7.1 per cent and 7.7 per cent respectively. The issue was 4.6x oversubscribed with the bids received at $11.5 billion against the target of $2.5 billion.
For Kenya, in mid-February 2018, officials from the Treasury carried out a road show in the UK and USA to market the country’s second Eurobond issue. On 23rd February 2018, the Government of Kenya issued its second set of Eurobonds, a 10-year and 30-year Eurobond at coupons of 7.3 per cent and 8.3 percent. These two coupons were 30 bpts below the 7.6 per cent and 8.6 percent, respectively, which had been advised by the banks working on the deal.
Ghana raised $2.0 billion through the issue of a 10-year and 30-year Eurobond in May 2018, at rates of 7.6 percent and 8.6 percent, respectively, both 30 bps below what Kenya managed to issue at. The issue was 4x oversubscribed with bids received hitting $8.0 billion, against $2.0 billion on offer.
Raising Eurobond as a preferred alternative source of external debt is not stopping soon. More countries in SSA are also planning to issue Eurobonds this year.
According to the report, Angola is expected to issue a Eurobond to raise $2.0 billion, to finance public investment projects while Tanzania is also expected to debut its first Eurobond worth $700 million to finance infrastructure projects after receiving its first-time local and foreign currency issuer rating of “B1” from Moody’s, with a “negative” outlook due to an increasingly unpredictable policy environment weighing on the business climate.
Dolapo Ashiru, a stockbroker said, “I see more Eurobond coming into Africa because we are in a hurry to develop so they want to borrow to develop.”
With the raising of more Eurobonds, SSA countries foreign borrowing appetite has been on the rise, as debt increasingly becomes a critical source of finance for development expenditure.
The report equally asserted that most of the funds raised from the Eurobond issuances are to be used to redeem nearly maturing foreign-denominated debt that was not necessarily more expensive in all cases, and finance national budgets with no clear indication as to whether the funds are to be channelled towards recurrent or development expenditure in all cases, with the latter being the preferred scenario.
