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SSA’s Eurobond issuance drops 12% in 2019 amid monetary easing

Sub-Saharan African (SSA) economies raised fewer funds from the dollar-denominated debt market in the just-concluded year 2019 amid monetary accommodation in advanced economies.
According to a report published by Lagos-based financial services company, United Capital Plc, SSA economies raised $16.5 billion in 2019, representing some 12 percent decline from $18.6 billion issued in the preceding year.

The number of new issuances by South Africa, Angola, Ghana, Benin, Kenya, Ivory Coast and Mozambique dropped to seven in 2019 compared to eight issuances in 2018.
“Surprisingly, despite a more accommodative monetary policy environment in the developed market, primary market issuance by SSA countries failed to touch 2018 levels,” the report stated.
Gbolahan Ologunro, a research analyst at Lagos-based CSL Stockbrokers, attributed the reduced Eurobond issuance among SSA nations 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 with Eurobonds, given the moderation in global yields. Hence they will prefer to hold off on further issuances to allow the US Fed to continue with its ‘hawkish’ rate cut will enable them to issue Eurobond at a lower cost compared to 2018,” he said.

Read also: Africa’s eurobonds are a blank cheque

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.

SSA countries are faced with financing challenges including the need to fund infrastructural gaps, but domestic high-interest costs are pushing the governments to look outwards to tap into lower-cost funds.

This has led to rising exposure by these countries to the financial markets of the developed economies and SSA countries seem to have positioned itself as an attractive investment destination as seen by the improving macroeconomic conditions.

In 2019, South Africa, Nigeria, Angola, Ghana, Kenya, Senegal, Ivory Coast, Mozambique, Benin and Seychelles issued $5 billion, 0, $3 billion, $3.0 billion, $2.1 billion, 0, $1.9 billion, $0.9 billion, $0.6billion and 0 respectively.
At the later part of last year, analysts had predicted that the total issuance by SSA countries by 2019-end may not surpass the all-time high of $18.6 billion seen last 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.
Nigeria did not issue Eurobond last year as it has shown 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.
“With an outlook for easier monetary policy conditions in advanced economies (especially in the U.S) the outlook for SSA’s sovereign Eurobonds is likely to remain bullish in 2020. However, domestic macroeconomic uncertainty might cap the strength of the bullish interest,” the report projects.

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