Gabon Misses Out on Africa Bond Rally as Vote Dispute Weighs

GABON, Capital Markets in Africa: Gabon is missing out on Africa’s bond rally because of an electoral dispute that’s weighing on investor confidence.

The oil-producing nation’s dollar bonds have lost 1.4 percent this month, the most out of 17 sub-Saharan African nations tracked by Bloomberg, which returned an average 0.6 percent. Yields on Gabon’s 2024 securities have climbed 77 basis points since the presidential poll of Aug. 27.

Emerging-market bond issuers are set for a record month of sales as investors hurry to lock in returns before the Federal Reserve raises interest rates, crimping the amount of money available to flow into higher-yielding assets. While yields from Kenya to Cameroon have dropped, Gabon’s bonds are attracting less demand as political uncertainty keeps investors away.

President Ali Bongo narrowly won a second seven-year term in the closest election in the nation’s history after garnering 49.8 percent of the vote against 48.2 percent for opposition leader Jean Ping, a victory due to the tally in Bongo’s home province, where voter turnout was 99.93 percent. The result was greeted by violence as protesters burned down shops and the parliament building, while Ping claimed that security forces killed hundreds of his supporters.

“The fact that the election is still disputed is what is drawing people away from the bonds,” Nicolas Jaquier, an emerging markets economist who helps oversee $1.3 billion of emerging market assets at Standard Life Investments Ltd. in London, said by phone on Tuesday. “The relationship between the two parties going forward is likely to be very tense since they are both claiming victory. There’s still a lot of uncertainty.”

Ping has since called for a national strike and asked the Constitutional Court to order a recount of the vote.

While the probability of Bongo continuing with a second term appears higher than him being forced aside, Ping is unlikely to “simply walk into the sunset,” raising the likelihood of more uncertainty, Raza Agha, chief economist for the Middle East and Africa at VTB Capital, said Tuesday in an e-mailed note to clients.

A spokesman for Gabon’s presidency couldn’t immediately comment when contacted by phone.

Gabon’s bonds recouped some of the losses following the peak of the post-election tensions, which suggests that investors are not overly concerned, Samir Gadio, head of Africa Strategy at Standard Chartered Bank Plc, said Tuesday by phone from London. Bongo has done a lot more than oil-producing peers to diversify the economy and is probably bond investors’ preferred choice for president, Alan Cameron, an economist at Exotix Partners LLP, said by phone.

Yields on Gabon’s $1.5 billion of securities due December 2024 rose 16 basis points to 8.12 percent by 10:44 a.m. in Libreville, the capital, after climbing 32 basis points on Monday and Tuesday.

Political Tensions
“Political tensions tend to generate short-term volatility in Eurobond prices,” Gadio said. “It usually subsides, unless tensions escalate to the point where there’s concern about a default. We are far from that point with Gabon.”

The likelihood that tensions will continue until legislative polls in December remains high, VTB’s Agha said. A rally in Gabon’s bonds prior to the election makes further out-performance relative to other African oil exporters such as Nigeria and Angola unlikely, Standard Chartered’s Gadio said.

“Any bond rally resulting from a perceived lowering of uncertainties would not likely be more than a few points at most,” Agha said.

Source: Bloomberg Business News