Africa’s largest Eurobond issuers eye market despite Zambia’s default

Africa’s notable absence from the rush to the Eurobond market this month is set to change as the largest economies on the continent prepare to tap the market during the first half of 2021.

Zambia’s default may make investors look more closely at riskier issuers, though it won’t necessarily lock countries such as Ivory Coast, Nigeria and South Africa out of the market, according to Standard Bank Group Ltd.

“Debt sustainability will always be a key topic with investors in the region, but we haven’t seen any undue signs of stress in secondary-market trading in recent weeks,” said Javier Penino Vinas, head of debt capital markets at Standard Bank Group Ltd. in Johannesburg.

“The market is ready and waiting for more supply, and would welcome a trade from some of the more frequent issuers from the region.”

Developing nations including Mexico, Russia and China have tapped international debt markets in recent weeks to lock in lower borrowing costs as they recover from the economic impact of the coronavirus pandemic.

The average yield on emerging-market dollar bonds fell to a record low this week, according to Bloomberg Barclays indexes.

There has been no Eurobond issuance from sub-Saharan Africa since before the pandemic, with a number of African nations relying on funding from multilateral lenders such as the International Monetary Fund.

Ivory Coast, Ghana and Nigeria have said they may tap international markets, while South Africa has also budgeted for foreign issuance.

That was before Zambia missed a $42.5 million coupon payment on one of its Eurobonds last week, triggering a default after bondholders rejected the southern African country’s request for a six-month interest freeze while it restructures its debt.

“We do not expect the rest of sub-Saharan African credit to be affected by this development, and see limited risk of a spillover,” said Samir Gadio, the London-based head of Africa strategy at Standard Chartered Plc.

“That said, investors will likely pay even more attention to dynamics in other distressed or high-yield SSA names.”

One of those is Ghana, which is planning to issue at least $3 billion of Eurobonds in the first quarter.

“More challenged African sovereigns, such as Ghana, are likely to need a significant strengthening of their fiscal position” to support demand for Eurobond issuance, said Mark Bohlund, a senior credit research analyst at REDD Intelligence.

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