African Countries to Accumulate More Debts through Eurobonds in 2019

By Soko Directory Team / January 21, 2019



Eurobonds

Sub-Saharan Africa countries will continue accessing foreign debt through the issue of Eurobonds in 2019 as yields in the region rose in 2018.

The rise on Eurobond yields, according to Cytonn Investments, was as a result of the aggressive tightening monetary policy regime adopted by the U.S Federal Reserve, coupled with the China-U.S trade tensions, which dampened investor sentiment in emerging markets.

Africa has increased its appetite for foreign debt in recent times with the latest issues being by the Republic of Nigeria, which issued three debt instruments in November 2018.

The increased affinity for foreign currency-denominated debt by African nations is driven by Reduced financial aid to African countries by Western donor nations, the need to finance heavy infrastructure projects, Covering for budget deficits, and Financing of maturing debt obligations.

Collectively, the year 2018 saw the Sub-Saharan Region (excluding South Africa) raise USD 13.7 bn through various Eurobond issues. The new instruments attracted a lot of interest as evidenced by the oversubscription in all the issues, with the Kenyan issues recording the highest oversubscription of 7.0x, underlining the sustained investor confidence in the African debt market.

This year, plans are underway in Ghana to raise USD 3 billion with Ivory Coast targeting to raise USD 1 billion from Eurobond sales.

The volatility of commodity prices adversely affected export revenues for resource-endowed countries like Nigeria and Zambia but with the truce arrival between US and China after the G20 Summit, yields are expected to stabilize as investors respond positively to the agreement between the two economic powers not to extend tariffs on trade commodities.

As stated by Cytonn in their report dubbed ‘Sub-Saharan Africa (SSA) Eurobonds: 2018 Performance and Effects on Debt Sustainability’, most Eurobond issues in 2018 have been motivated by refinancing needs as part of debt-management strategies mooted by the various governments, with part of the bond proceeds being used to meet existing debt obligations of the respective issuers.

Coming into 2019, yields on Ghanaian Eurobonds are expected to decline due to prospects of relative economic and political stability, whereas Kenyan, Nigerian and Senegal Eurobond yields might rise due to potential political risks arising from the looming elections later in the year in Nigeria and Senegal, coupled with volatility in global commodity prices, especially for oil-producing Nigeria.

The downgrading of Kenya’s debt distress rating from low to moderate by the IMF would mean investors will expect higher yields on any new debt issued.

Cytonn, however, notes that despite external debt being a cheaper and more easily accessible financing option for African governments, it poses the sustainability question due to rising debt levels as well as volatility in commodity prices and exchange rates.

According to the firm, unsustainable debt levels may cause distress and increase the probability of default, and the possible effects of the heavy debt burden will be felt most by the taxpaying citizens. Countries seeking to increase revenue may opt to increase the tax base, eliminate trade barriers and boost local industries as opposed to increased borrowing that is not sustainable



About Soko Directory Team

Soko Directory is a Financial and Markets digital portal that tracks brands, listed firms on the NSE, SMEs and trend setters in the markets eco-system.Find us on Facebook: facebook.com/SokoDirectory and on Twitter: twitter.com/SokoDirectory

View other posts by Soko Directory Team


More Articles From This Author








Other Related Articles










SOKO DIRECTORY & FINANCIAL GUIDE

ARCHIVES

2019
  • January 2019 (256)
  • February 2019 (216)
  • March 2019 (285)
  • April 2019 (254)
  • May 2019 (272)
  • June 2019 (252)
  • July 2019 (233)
  • 2018
  • January 2018 (291)
  • February 2018 (219)
  • March 2018 (278)
  • April 2018 (225)
  • May 2018 (238)
  • June 2018 (178)
  • July 2018 (257)
  • August 2018 (249)
  • September 2018 (256)
  • October 2018 (287)
  • November 2018 (284)
  • December 2018 (187)
  • 2017
  • January 2017 (183)
  • February 2017 (195)
  • March 2017 (207)
  • April 2017 (104)
  • May 2017 (169)
  • June 2017 (205)
  • July 2017 (190)
  • August 2017 (195)
  • September 2017 (186)
  • October 2017 (235)
  • November 2017 (253)
  • December 2017 (266)
  • 2016
  • January 2016 (165)
  • February 2016 (165)
  • March 2016 (190)
  • April 2016 (143)
  • May 2016 (246)
  • June 2016 (183)
  • July 2016 (271)
  • August 2016 (249)
  • September 2016 (234)
  • October 2016 (191)
  • November 2016 (243)
  • December 2016 (153)
  • 2015
  • January 2015 (1)
  • February 2015 (4)
  • March 2015 (166)
  • April 2015 (109)
  • May 2015 (117)
  • June 2015 (121)
  • July 2015 (150)
  • August 2015 (157)
  • September 2015 (189)
  • October 2015 (170)
  • November 2015 (174)
  • December 2015 (208)
  • 2014
  • March 2014 (2)
  • 2013
  • March 2013 (10)
  • June 2013 (1)
  • 2012
  • March 2012 (7)
  • April 2012 (15)
  • May 2012 (1)
  • July 2012 (1)
  • August 2012 (4)
  • October 2012 (2)
  • November 2012 (2)
  • December 2012 (1)
  • 2011
    2010
    2009
    2008
    2007
    2006
    2005
    2004
    2003
    2002
    2001
    2000
    1999
    1998
    1997
    1996
    1995
    1994
    1993
    1992
    1991
    1990
    1989
    1988
    1987
    1986
    1985
    1984
    1983
    1982
    1981
    1980
    1979
    1978
    1977
    1976
    1975
    1974
    1973
    1972
    1971
    1970
    1969
    1968
    1967
    1966
    1965
    1964
    1963
    1962
    1961
    1960
    1959
    1958
    1957
    1956
    1955
    1954
    1953
    1952
    1951
    1950