- Bond Issuance Slumps to Six-year Low
Sovereign bond issuance by African nations including Nigeria plunged to its lowest level since 2010 as buyers pushed up yields and proposed new borrowing plans.
Stripping out South Africa, sub-Saharan nations managed to get only one hard-currency bond last year, Financial Times reported.
Even that, a five-year $750m bond issued by Ghana in September, had to be scaled down from plans to borrow $1bn over 10 years amid buyers’ fears that the west African state would wrestle to meet its fiscal targets.
This compares poorly with the interval from 2013 to 2015, when sub-Saharan states (excluding South Africa) issued 21 greenback bonds, elevating a complete of $18bn, accordance to a report by Exotix Partners.
The Head of Analysis at Exotix, Stuart Culverhouse, said final year’s weak issuance was largely due to a weak exterior backdrop, with low commodity costs and tepid enthusiasm for rising markets among worldwide buyers.
This resulted in a “large dislocation in yields,” which surged past 12 per cent for African commodity exporters, earlier than falling again to round eight per cent later within the year.
“Loads of nations most likely couldn’t afford to difficulty. The solely nations that would most likely didn’t need to,” Culverhouse said.
The sub-Saharan Economist at Renaissance Capital, Yvonne Mhango, said one other issue behind the issuance drought was that many nations were trying to implement fiscal consolidation.
“If you’ve got nations which have been requested to rein of their spending then it implies that the necessity to increase additional funding falls,” Mhango said.
The Head of Rising Market Sovereign Analysis at BlueBay Asset Management, Graham Stock, said the shortage of an IMF programme triggered buyers to shun Zambia’s overtures, whereas oil producers, reminiscent of Angola, had been out of favour amid low international costs.
“We had various oil producers that may have issued final year however are nonetheless struggling to exhibit that they’ve their funds suitably adjusted to handle increased debt ranges,” Stock said.
He added, “Last year was uncommon in that there weren’t many governments that wanted difficulty and those that may have appreciated to have carried out so weren’t ready to accomplish that.”
He forecasts that a pick-up in issuance this year from the likes of Zambia (assuming it does enter an IMF programme), Kenya and oil producers reminiscent of Nigeria, Angola and Gabon, as their funds enhance in step with recovering crude costs.
“I believe the markets can most likely take in that,” he said.
Mhango also believes the country will attempt to borrow this year, given that it is among the comparatively few main nations within the area with an expansionary price range.
Kenya is one other chance, she said, adding that it could go for a syndicated mortgage as an alternative.
However, Mhango was sceptical that the funds of most commodity producers had improved sufficient to help issuance at a yield they’ll afford, given a backdrop of the rising United States rates of interest.
Culverhouse warned that the times when African nations might borrow at charges of five to six per cent, as Zambia, Nigeria, Kenya, Ivory Coast and Namibia all did between 2012 and 2015, “have most likely gone.”
However, Stock said that the truth that a wave of 10-year bonds issued in 2007 and 2008 at the moment were approaching maturity meant governments would probably be eager to refinance.
Moreover, the timing could also be propitious he said, adding that with nations reminiscent of Argentina, Colombia, the Dominican Republic, Turkey and the Philippines, sometimes rated triple or double-B, presently available in the market, Stock added, “The subsequent transfer may be to see extra issuance from the best yielders, reminiscent of these in Africa,” he said.
