Falling Gabon Yields Show Strong Demand for African Issuers

GABON (Capital Markets in Africa) – Gabon, one of the lowest-rated sovereigns in Africa, sold the first Eurobonds from the continent this year, with investors snapping up the high-yielding debt even as concerns over the outbreak of the coronavirus continued to weigh on global markets.

The government issued $1 billion of 10-year securities with a yield of 6.625%, at the lower end of the final price guidance and well below the initial price target of 7%, according to a person familiar with the transaction who asked not to be identified because they are not authorized to speak about it. The West African nation paid 6.95% for its previous sale of 10-year bonds in 2015.

The deal also suggests demand for debt from sub-Saharan issuers remains strong even as investors fret about the effect of the deadly illness on global growth. It should encourage other potential issuers like Ghana, which started a series of investor meetings Thursday for a possible $3 billion sale next week.

“The tight pricing is instructive for other African credits that might be coming to market soon, as this shows that despite elevated concerns over the coronavirus, appetite for African paper remains decent,” said Daniel Kavishe and Neville Mandimika, Johannesburg-based economists at Rand Merchant Bank, in a note to clients. “However, it must be noted that this was the first Eurobond issuance this year, which normally attracts outsized demand.”

Deutsche Bank AG, JPMorgan Chase & Co. and Standard Bank Group Ltd. managed the sale. The country also announced a tender invitation to holders of its outstanding 2024 and 2025 dollar securities, for a maximum acceptance amount of $750 million.

“What really helped here is that the issuance size was capped and that there was only $250 million of new money raised; the rest was for refinancing purposes,” said Samir Gadio, the London-based head of Africa strategy at Standard Chartered Plc. “This made it easier to push the pricing to the lower end of the guidance, despite less supportive risk conditions yesterday and lower oil prices.”

Yields on Gabon’s 2025 Eurobonds have climbed 13 basis points this week to 5.3%, after reaching a record low on Jan. 24. The country is rated seven levels below investment-grade by Moody’s Investors Service at Caa1.

Average yields on Eurobonds from sub-Saharan Africa have dropped more than 150 basis points in the past year to 6.48%, according to JPMorgan Chase & Co. indexes. That’s still almost two percentage points higher than the emerging-market average, promising potentially juicy returns for investors willing to take on the added risk.

Source: Bloomberg Business News