2024-01-12 01:40:38
Sub-Saharan African nations have been locked out of international debt markets for 22 months, and investors are increasingly betting that the drought will end soon as countries seek financing for a series of capital payments due this year and next. next.
South Africa is due $1.5 billion in bonds this month, while Kenya has $2 billion due in June. Second-half principal repayments will come from Senegal, Ivory Coast and Gabon. Ethiopia was due in December but defaulted last month.
It has already been a long wait for nations in need of financing and for high-yield investors eager for new businesses. The issuance drought began in April 2022 and lasted through 2023. The last time sub-Saharan African countries went an entire year without a single international bond sale was in 2009, in the midst of the global financial crisis.
One of the main candidates to try to end the blockade is Kenya. Other candidates to end the lending drought include South Africa, Angola and Nigeria, according to Morgan Stanley. Each could explore the market with returns of around 10%.
The spread between yields on Kenyan dollar debt and US Treasury bonds has narrowed more than 400 basis points since reaching an all-time high last year. It closed at 599 basis points on Wednesday, according to JPMorgan Chase & Co., down from a high of 1,028 in April.
“Kenya could well be the first to issue this year and you would think market demand would be forthcoming,” said Simon Quijano-Evans, chief economist at Gemcorp Capital Management in London. If markets realized that new bond issuance was on the way, it could also help reduce spreads from current levels as it would imply an improvement in the country’s financial position for 2024, he said.
South Africa, specifically, could issue up to US$2.5 billion in the second quarter, but the issuance of this amount will largely depend on external financing conditions.
Still, Moody’s Investors Service says the outlook for sub-Saharan African sovereign issuers is negative this year. That’s a reflection of the risks posed by large debt burdens and the difficulties many countries will have refinancing at rates they can afford, analysts wrote in a report released Wednesday.
Ethiopia’s Christmas default was a signal to international investors and trading partners of the heightened risk of African economies.
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