African Sovereign Eurobond October 2015 Review: Yield narrowing, Ghana and Namibia issue US$1b and US$750m resp. in Oct …

Lagos, Nigeria, Capital Markets in Africa — The economic pressure on limited resources continued to have significant impact on African countries, as a result of downtrend in the commodity prices. So, most African countries are cash squeeze, forcing governments to reduce spending as debt rises and instigating central banks to implement aggressive monetary policy tightening to control inflation. The inability of government to meet its obligation has resulted to Students’ unrest in South Africa against increase in tuition fee and prayer and fasting session in Zambia for divine intervention.

Falling commodity prices have put African currencies from Zambia (depreciated by about 97 percent in 2015 as at 31 October 2015) to Angola (depreciated by about 32 percent). So, International Monetary Fund (IMF) advised, African countries to allow their currencies to weaken to absorb shocks to their economies. The Brooking Institute pointed out that resisting currency pressure depletes foreign-exchange reserves and results in weaker imports and economic growth.

The depleting revenues has resulted to widening in the yield of most African bonds, as borrowers (at local and international) are demanding high premium, so African countries are faced with increasing debt services cost. Ghana and Namibia issued Eurobonds in October 2015, and this bring total issued amount to US$6 billion in the first ten months of 2015. Angola announced the launching of a US$1.5 billion Eurobond on Thursday 22 October 2015.

Ghana issues was a 15-year Eurobond maturing in October 2030 at 10.75 percent annual coupon rate and issued amount of US$ 1 billion with 40 percent guaranteed by the IMF. The spreads on the bond had narrowed by 34.2 basis points since the issued date at 9.93 percent yield at the end of October. While Namibia issued US$750 million dollar denominated Eurobond paying an annual coupon rate of 5.25 percent and maturing in October 2025. As at 31 October, the yield on the Namibia’s 2025 Eurobond was at 5.35 percent after widening by 10.9 basis points since issued date.  

In the month of October, US$234.1 million was due interest payment and US$27 million is interest payment due in November by Rwanda (Us$13.25 million) and Namibia (US$13.75 million). The total amount outstanding of Eurobond issued by African sovereign entities was recorded at US$45.0 billion at the end of October 2015. Out of which US$1.8 billion and US$1.2 billion will mature in 2016 and 2017 respectively.

The spreads on the African sovereign Eurobond narrowed at the end of October 2015 compared to the September’s yield, with some exceptions: Egypt’s 2020 (1 month spread of +8.8 basis points), Egypt’s 2040 (1 month spread of +34.9 basis points), Namibia’s 2025 (1 month spread of +10.9 basis points) and Tunisia’s 2027 (widening by 6.1 basis points at 6.70 percent). The table below shows the yield to maturity and spread movements for some selected African sovereign Eurobonds at the end of October 2015.