African Sovereign Eurobond January 2016: Ghana’s spreads widening, Nigeria’s narrowing …

LAGOS, Nigeria, Capital Markets in Africa — Volatility and unexpected economic events shook markets at the beginning of 2016, questioning fundamentals of emerging markets. Generally, African Eurobond outlook is likely to worsen in 2016, due to commodity price slump, reduce revenue and pressure on currency. These forces will compel African governments to tap into international markets, so increase supply against limited liquidity may, hence means issuers will likely need to offer sizable new issuance premia to attract demand; likely to pressure spreads in secondary markets. For example,  Nigeria and Egypt are mulling the issuing US$1 billion Eurobond in second quarter of this year.

The total amount outstanding of Eurobond issued by African sovereign entities was recorded at US$47 billion  at the end of January 2016. Out of which US$1.83 million and US$1.24 billion will mature in 2016 and 2017 respectively.  The interest and principal repayment due in 2016 was recorded at US$4.8 billion (see chart below for details) and US$104 million was paid as interest in the month of January 2016.

The spreads on the African sovereign Eurobond continued to be widen at the end of January 2016 compared to December 2015 spreads. For instance,  the yields on Ghana’s Eurobonds due July 2017 traded at 13.76 percent as at 31 January 2016 compared to 10.01 percent at the end December 2015.  They have risen by about 532 bps relative to end of January 2014. Similarly,  the yields on Ghana’s 2023, 2026 and 2030 Eurobonds widened by 171 bps, 142bps and 97 bps respectively, in the month of January, as the Ghanaian economy has weakened and investors have pulled out of emerging markets in anticipation of rising interest rates in the U.S., which makes assets there more attractive.

On the other hand, Nigerian Eurobond spreads narrowed in the month of January by 23bps (with yield of 6.84 percent), 42bps (8.04 percent yield) and 32bs (8.24 percent yield) for the 2018, 2021 and 2023 maturing Eurobonds respectively.

The table shows yields and spreads movement for selected sovereign African Eurobonds.