Angolan Bonds Plunge as President Warns of Debt Payment Struggle

ANGOLA, Capital Markets in Africa: Yields on Angolan Eurobonds soared after the leader of Africa’s largest oil producer said the country is struggling to meet its debt payments because of the crash in crude prices.

Revenues are “barely enough” to pay off debt owed by the government and Sonangol, the state oil company, President Jose Eduardo dos Santos said at a meeting of the ruling MPLA party, according to a broadcast on state TV Friday. The central bank has been receiving about $300 million a month from oil companies, “manifestly insufficient for the needs of banks and the needs of the state budget,” Dos Santos said.

Yields on Angola’s $1.5 billion of Eurobonds due in November 2025 rose 59 basis points to 10.32 percent by 2:47 p.m. in the capital, Luanda, the most since Jan. 20 on a closing basis and set for the highest since April 12.

Angola, sub-Saharan Africa’s biggest economy after Nigeria and South Africa, has been battered as oil prices fell by more than half since 2014 to around $50 a barrel. The commodity accounts for 70 percent of government revenue and almost all exports. The government hasn’t received revenue from Sonangol since the beginning of the year, Dos Santos, 73, said.

Tumbling Currency
The kwanza has fallen 20 percent against the dollar in 2016. Even so, its official value of 169.21 per greenback is much stronger than the black market rate of around 620, which has weakened as hard currency becomes more scarce. The central bank may devalue the kwanza by as much as 20 percent, the Novo Jornal reported Friday, citing banking officials it didn’t identify. Calls to Banco Nacional de Angola seeking comment went unanswered.

The nation’s ratio of debt to gross domestic product will reach 70 percent this year, more than double the 2013 figure of 33 percent, the International Monetary Fund said in April. The central bank on Thursday raised its benchmark interest rate 200 basis points to a record 16 percent, as the IMF said the government had called off talks about a bailout loan to help steady the economy.

The nation only wants discussions to continue about the country’s annual economic assessment, IMF spokesman Gerry Rice said at a briefing in Washington Thursday.

It is “very important that any further debt that Angola takes on is done at the lowest possible cost and plowed back into projects that will help the economy diversify away from oil and earn revenues,” Candy Mazzuchetti, a country-risk analyst at Firstrand Ltd.’s Johannesburg-based investment banking unit, said in an e-mailed response to questions. “Debt risks would increase if they are unable to achieve this. So it would be important to understand if the types of funding that Angola would look for outside of the IMF would achieve this outcome.”

Source: Bloomberg Business News