Once considered a rising star on the continent, the
commodity-reliant west African nation is dogged by inflation of almost
20 percent, slowing growth and public debt of 80 percent of GDP.
Uganda's
President Yoweri Museveni arrives to attend the Africa Union Peace and
Security Council Summit on Terrorism at the Kenyatta International
Convention Centre in Nairobi, September 2, 2014. Kenya could become the first African country to tap global debt markets this year as it begins a bond roadshow this week, but Eurobond financing is likely to remain out of reach for most of its peers on the continent.
Bond
sales from sub-Saharan Africa, which had previously been booming, are
yet to start in 2016 after a stormy start to the year for commodities
and currencies that has left some countries on the brink of crisis.
Despite
the difficulties, some African Eurobonds have been outperforming,
thanks in part to the bounce in oil and metals but also on the back of
some potential turnaround stories, something all investors love.
Back
in January investors were demanding record premiums of 620 basis points
to hold African bonds rather than U.S. debt. That has now fallen back
to 550 bps, with oil importers Kenya and Ivory Coast topping the list of
winners as this chart shows: http://reut.rs/1MZUrYz .
An
investor-friendly debt swap by Mozambique's state-run fishing firm has
also helped sentiment, as has struggling metal miner Zambia starting
talks with the International Monetary Fund.
Now some countries could leverage the improved mood. Kenya's presentation, led by finance minister Henry Rotich, is billed as a 'non-deal' roadshow but it is likely to be at least a test of the waters.
"(Kenya) could probably issue. Aside from the 8 percent budget deficit, it's a pretty good story," said Kevin Daly,
a portfolio manager at Aberdeen Asset Management. "The currency is
stable, domestic rates are coming down, inflation is starting to fall
and growth is in the 5-6 percent range."
The World
Bank this year singled out Kenya as an African bright spot, with
economic growth accelerating thanks to cheaper oil, a solid agriculture
sector, and infrastructure investment.
The yield
on its existing 2024 dollar bond is down to around 7.75 percent from it
9.8 percent January high. But to warrant the extra cash, any new 10-year
bond will need to have a premium of up to 50 basis points on that,
investors say.
But other African countries will have to pay much more.
Countries
such as Ghana, which is also holding a roadshow next week, could find
itself having to pay double-digit percentage coupons.
Once
considered a rising star on the continent, the commodity-reliant west
African nation is dogged by inflation of almost 20 percent, slowing
growth and public debt of 80 percent of GDP.
Desperate
for cash, it paid 10.75 percent last October to raise $1 billion. That
bond even came with a partial World Bank guarantee. It is now at just
over 11 percent
The government has got its eyes on
another $1 billion bond this year, but investors are likely to want
another World Bank guarantee at the very least.
"At
12 percent, Ghana should not be coming to market, they should be doing
more to convince people they are serious about reform," Exotix head of
research Stuart Culverhouse said.
Such
yields can easily deter countries - Ivory Coast has said it will not
sell Eurobonds this year - and Aberdeen's Daly predicts sub-Saharan
African issuance could effectively halve to $3.0 billion-$4.0 billion
this year.
Angola, which has turned to the World
Bank for assistance, and Nigeria could also try their luck. The latter
has budgeted for a $1 billion Eurobond.
But the
oil collapse had left these countries with big budget deficits and
economies growing at less than 3 percent. Their currencies are also seen
as overvalued, with black market rates significantly weaker than
official exchange rates.
Nigeria especially has
steadfastly refused to devalue and Reuters reported it recently dropped
bond roadshow plans and would turn instead to China for cash.
(Editing by Hugh Lawson)
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