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Ghana/Kenya: Eurobonds to Decouple as Fiscal Challenges Come to Fore

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Ghana and Kenya, two of the sub-Saharan African sovereigns with the highest amount of outstanding Eurobonds, could see a widening of their risk premiums over 2021, according to a Senior Credit Analyst at Redd Intelligence, Mark Bohlund.

Faced with fiscal challenges, the two African nations are expected to return to the Eurobond market in the first quarter of 2021, but this time with bigger risk premiums as investors are expected to incorporate a higher likelihood of frontier-market issuers being pushed into debt restructuring.

Mark Bohlund said, “Ghana and Kenya are likely to return to the Eurobond market in 1Q21 but see a widening of their risk premiums over 2021 as investors incorporate a higher likelihood of frontier-market issuers being pushed into debt restructuring.”

With Ghana’s outstanding Eurobonds presently estimated at US$10.3 billion and Kenya’s outstanding Eurobonds put at US$6.1 billion, spreads on Ghana’s Eurobonds will increase over those of Kenya in 2021.

It is likely that spreads on Ghana’s eurobonds over those of Kenya will increase over 2021 as concerns rise over its weak fiscal position and high reliance on commercial overseas financing,” Bohlund stated.

Commenting on the countries’ fiscal positions, Bohlund said both countries are likely to post double-digit fiscal deficits this year, as contracting economies add to already faltering government revenue.

“With interest costs absorbing close to 50% of government revenue, Ghana will struggle to find sufficient cost- savings in other areas to reduce the fiscal deficit substantially in 2021.”

“In contrast to Kenya, Ghana has already cut back its capital expenditure to a bare minimum. The Bank of Ghana stepped up its purchases of government bonds sharply in September and we expect this to continue during 2021.

“In Kenya, part of the solution should be to encourage county governments to raise more revenue, but this will be challenging to implement before the August 2022 elections.

“Having shied away from bi- and multilateral creditors in favor of commercial borrowing, Ghana is likely to struggle to secure sufficient external financing in 2021. This makes increased central bank financing likely and poses downside risks to the cedi.

“Neither Ghana nor Kenya is likely to seek DSSI participation in 1H21 even if they deem that international bond issuance will not be possible.

“We have changed our view and now expect both Ghana and Kenya to issue Eurobonds in 1H21.

“Kenya is likely to continue to draw on funding from the IMF, the World Bank and other multilateral creditors, as well as bilateral financial support from China as the Standard Gauge Railway, continues to bleed funds.”

Bohlund added that the spreads between Ghana and Kenya Eurobonds are likely to widen further as a higher risk of a debt restructuring is priced into Ghanaian assets.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

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Dangote Cement Completes Issuance of N50 Billion Series 1 Fixed Rate Senior Unsecured Bonds

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Dangote Cement - Investors King

Dangote Cement, Africa’s largest cement producer, announced it has successfully issued N50 billion Series 1 Fixed Rate Senior Unsecured Bonds under the company’s new NGN300 billion Multi-Instrument Issuance Program.

The leading manufacturer disclosed in a statement signed by Edward Imoedemhe, Deputy Company Secretary, Dangote Cement Plc.

According to the statement, the bonds were issued on May 26 2021 at coupon rates of 11.25%, 12.50% and 13.50% for the 3, 5 and 7-year tranches respectively.

The statement read in part, “Despite market headwinds, the bond issuance was well received and recorded participation from a wide range of investors including domestic pension funds, asset managers, insurance companies and high net-worth investors.

“The proceeds of the bond issuance will be deployed for the company’s expansion projects, short-term debt refinancing and working capital requirements. Aside from this first issuance of a traditional bond under the new Multi-Instruments Programme, Dangote Cement has registered a programme enabling it to consider different types of fixed income instruments to cater for different type of investors.”

“The ability to issue Green Bonds and Sukuk will enable the company leverage the depth and breadth of the Nigerian market.”

Commenting on the bond issuance, Michel Puchercos, Chief Executive Officer of Dangote Cement Plc. stated: “This bond issuance allows us move a step further in achieving our expansion objectives and will be deployed to projects instrumental in supporting our export strategy while improving our cost competitiveness.

“We thank the investor community for their continued support in the management of Dangote Cement and their successful participation in the bond issuance.”

Absa Capital Markets Nigeria acted as Lead Issuing House for the Series 1 Bonds, and Stanbic IBTC Capital, Standard Chartered Capital & Advisory Nigeria Limited, United Capital Plc, FBN Quest Merchant Bank, FCMB Capital Markets, Coronation Merchant Bank, Ecobank Development Corporation Nigeria, Futureview Financial Services, Meristem Capital Limited, Rand Merchant Bank, Quantum Zenith Capital and Vetiva Capital Management acted as Joint Issuing Houses. The Bonds will be listed on the Nigerian Exchange Limited and FMDQ Securities Exchange.

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African Development Bank Launches AUD$600 Million (USD$463.9 million) Kangaroo Social Bond

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Akinwumi Adesina - Investors King

The African Development Bank launched a A$600 million (US$463.9 million) 5.5-year Kangaroo bond, marking its return to the Australian dollar bond market.

The transaction, announced on 8 June, was led by Nomura and RBC Capital Markets. It is the institution’s first benchmark Kangaroo since early 2018 and its first in the mid-curve since 2015. It is also the largest AUD trade ever issued by the Bank. More than 30 investors participated in the deal, with a total order book of more than A$775 million, leading to an upsize of the trade from the announced size of A$250-300 million to the final size of A$600 million. These included a strong cohort of Australian investors, while fund managers were the major investor type.

African Development Bank Treasurer Hassatou N’sele said the Covid-19 pandemic had led to a rise in global issuances of social bonds.

“Following on from the ground breaking USD$3.1 bln 3 year ‘Fight Covid-19’ Social Bond we issued in 2020, we’re glad to see that public domestic markets, like the Kangaroo bond market, are now seeing similar development in terms of interest from dedicated ESG investors, which provided additional momentum enabling us to print the largest trade we’ve ever done in AUD”.

The African Development Bank’s social bonds have use of proceeds allocated to projects that alleviate or mitigate social issues such as improving access to electricity, water and sanitation, and improving livelihoods through flood-risk reduction and access to clean transportation and employment generation.

Recent KangaNews data show that the African Development Bank had A$1.75 billion of bonds mature between its 2015 benchmark deal and its most recent. Keith Werner, Manager of Capital Markets and Financial Operations, said 38 per cent of investors in the deal had a socially responsible investment approach and that the African Development Bank intends to issue more social bonds in Australian dollars.

“In addition to the important contribution that socially responsible investors had to the success of this trade, it’s also gratifying to see such a large portion of the investors (41%) were domestic, which is an area where we haven’t seen strong support historically. We look forward to leveraging this momentum and continue evaluating opportunities in the future in this market”, Werner said.

The Australian dollar is the fifth currency in which the African Development Bank has issued social bonds since it established the program in 2017, following deals in euros, US dollars, Norwegian kroner and Swedish kronor.

In December 2016, the African Development Bank launched its inaugural Kangaroo Green Bond. This transaction followed successful outings in USD and SEK Benchmark formats.

A Kangaroo bond is a foreign bond issued in the Australian market by non-Australian firms and is denominated in Australian currency. The bond is subject to the securities regulations of Australia. A Kangaroo bond is also known as a “matilda bond.”

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FMDQ Admits BUA Cement’s N115bn Bond

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FMDQ Group - Investors King

FMDQ Securities Exchange Limited has announced the admission of the BUA Cement Plc N115bn Series 1 Fixed Rate Senior Unsecured Bond under its N200bn Bond Issuance Programme, for listing on its platform, as approved by the Board Listings and Markets Committee of the Exchange.

The Exchange described the issuance as the first by BAU Cement and the largest corporate bond issued in the Nigerian debt capital markets.

It said in a statement that the proceeds from the issuance would be used to refinance existing debt obligations of the issuer, finance its working capital as well as fund its Debt Service Reserve Account.

The Chairman, BUA Cement, Abdul Samad Rabiu, was quoted as saying, “This is the largest corporate bond issue in the history of Nigeria’s DCM. In 2020, we made a strategic decision as a proudly Nigerian company to list the shares of BUA Cement. This was in line with our core strategy to continue seeking out viable investment and growth opportunities within Nigeria.

“This bond issue – a first by BUA Cement, demonstrates our confidence in the Nigerian DCM as well as continued investor confidence in BUA Cement’s business model, our management team, and long-term strategy, all supported by strong credit ratings.”

He said the company remained committed to unlocking opportunities within the industry for Nigeria.

The Chief Executive Officer, BUA Cement, Yusuf Binji, said the success of the bond issue underscored the strength of BUA Cement’s brand.

Stanbic IBTC Capital Limited, the sponsor of the bond on FMDQ Exchange, said the bond was over-subscribed by 38 per cent.

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