Eurobonds no help to Sub-Saharan Africa due to yields and virus
‘The mood is so bad that nobody will look at’ eurobond offerings from Sub-Saharan Africa
Accra/Abuja — Countries in Sub-Saharan Africa will have to shelve plans for Eurobond issuance as yields rise and the spread of the coronavirus limits travel, according to investors including Capitulum Asset Management and Gemcorp Capital.
After rising 40 basis point (bps) in February, average sovereign dollar-bond yields in the region have climbed 100bps in March to the highest in more than a year, according to JPMorgan Chase’s measure. That compares with an increase of 60bps for emerging markets more broadly.
“Sub-Saharan eurobond issuers will probably have to wait for the next window, given the strong drop in commodity prices that has led to the region underperforming emerging-market peers in the past week,” Simon Quijano-Evans, the London-based chief economist at Gemcorp, said by phone. “There’s the likelihood that roadshows will be very difficult given the coronavirus and the current preference for safe-haven instruments.”
SA, Nigeria, Ivory Coast and Benin are among countries that have penciled in eurobond sales this year. So far this year, Angola, Gabon and Ghana have tapped the market, with the latter attracting $15bn in orders for a $3bn deal last month. At the time, investors including Aberdeen Asset Management warned that market conditions would worsen for issuers as the coronavirus curbs commodity prices.
Brent crude oil has slumped 27% this month, while cocoa futures are down 3.5%. Cross-border travel bans by some governments, as well as travel restrictions imposed by companies on their employees, means organising investor meetings in the circumstances would be difficult.
Right now “the mood is so bad that nobody will look at” eurobond offerings from Sub-Saharan Africa, said Lutz Röhmeyer, the Berlin-based chief investment officer at Capitulum. “When even regular issuers and standard names do not come to market, then irregular, first-time issuers or exotic names from Africa will have a hard time to place bonds.”
While the eurobond window is effectively closed for now, Sub-Saharan African sovereigns could consider borrowing from the International Monetary Fund (IMF) and the World Bank to meet financing needs, Gemcorp’s Quijano-Evans said. The IMF has made available $50bn to provide assistance to low-income and emerging markets that are facing disruptions from the virus.
“That option always has to be kept open,” Quijano-Evans said. “If that sort of demand should arise, I think the IMF will step in immediately to support any country.”