Viral outbreak shuts debt markets for African borrowers

  • South Africa, Nigeria, Ivory Coast, Benin were mulling sales
  • Rising yields, travel restrictions make market a no-go zone

Countries in sub-Saharan Africa will have to shelve plans for Eurobond issuance as yields rise and spread of the coronavirus limits travel, according to investors including Capitulum Asset Management GmbH and Gemcorp Capital LLC.

After rising 40 basis point in February, average sovereign dollar-bond yields in the region have climbed 100 basis points in March to the highest in more than a year, according to JPMorgan Chase & Co.’s measure. That compares with an increase of 60 basis points 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 a likelihood that roadshows will be very difficult given the coronavirus and current preference for safe-haven instruments.”

South Africa, Nigeria, Ivory Coast and Benin are among countries that have pencilled in Eurobond sales this year. So far this year, Angola, Gabon and Ghana have tapped the market, with the latter attracting US$15billion of orders for a US$3billion deal last month. At the time, investors including Aberdeen Asset Management Plc warned that market conditions would worsen for issuers as the coronavirus curbs commodity prices.

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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 Roehmeyer, 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 and World Bank to meet financing needs, Gemcorp’s Quijano-Evans said. The IMF has made available US$50billion to provide assistance for low-income and emerging markets which 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.”

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