Kenya's Eurobond sale is showing the way for more sub-Saharan African nations to follow as the Federal Reserve and European Central Bank signal borrowing costs will remain low.
Ghana, Ivory Coast, Rwanda and Senegal say they're weighing foreign-currency debt, while the Republic of Congo said this week it plans to sell $1.5 billion of credit-linked notes to European investors. The yield on Kenya's 10-year security has fallen 45 basis points to 6.43 percent since being announced on June 16, narrowing the premium over similarly dated U.S. Treasuries by 41 basis points to 387.
With interest rates in the U.S. and Europe unlikely to rise soon, issuers have time to obtain low funding costs before the global economic recovery brings an end to stimulus that drove gains in emerging-market debt. The average yield on African dollar bonds dropped to a one-year low on May 29, JPMorgan Chase & Co. indexes show.
"The exceptionally low yields on frontier debt at present are likely to spur potential issuers into action," Melissa Verreynne, an analyst at NKC Independent Economists in Paarl, South Africa, said by e-mail yesterday. "There is an opportunity to lock in favorable borrowing costs."
Issuance in sub-Saharan countries may reach $6 billion this year, Fitch Ratings said in January. A first-time offering by Rwanda and sales by Nigeria and Ghana were among the record after a record $6.25 billion in 2013.
Kenya sold $500 million of five-year securities paying a coupon of 5.875 percent and $1.5 billion of 10-year bonds at 6.875 percent as investors ignored a spate of bomb attacks in the capital, Nairobi and the port city of Mombasa. The shilling fell 0.2 percent to 87.78 per dollar by 10:34 a.m. in Nairobi, bringing its loss this year to 1.7 percent.
Zambia, which shares Kenya's B1 rating at Moody's Investors Service, sold $1 billion of Eurobonds at a coupon of 8.5 percent in April. The yield was 6.995 percent yesterday, up from a record low of 6.91 percent on June 9.
"There's still an exuberance for African credit," Nema Ramkhelawan-Bhana, an analyst at Rand Merchant Bank Ltd., said by phone from Johannesburg yesterday. "That's why Kenya's Eurobond priced so well, even though there are concerns about the fiscal metrics and security issues."
Standard Bank Group Ltd., Societe Generale SA's local unit and Citigroup Inc. have been appointed to manage Senegal's second Eurobond offer, Ange Constantin Mancabou, an adviser to Finance Minister Amadou Ba, said by e-mail from Dakar yesterday. Ghana named Barclays Plc, Standard Chartered Plc and Deutsche Bank AG as advisers for its third Eurobond on May 30. The sale depends on market conditions, Sam Mensah, technical adviser at the Finance Ministry, said by phone yesterday. Rwanda plans to return to the market, Finance Minister Claver Gatete said on May 20. He declined to comment by phone yesterday.
Ivory Coast plans to market a $500 million Eurobond in the U.S. and U.K. from July 7 to 18, Affoussiata Bamba-Lamine, deputy government spokeswoman, told reporters yesterday in Abidjan.
Tanzania expects to get a sovereign credit rating by the end of 2014 and issue its inaugural Eurobond in the fiscal year that starts July 1, Bank of Tanzania Governor Benno Ndulu said last month. Finance Minister Saada Mkuya Salum didn't answer two calls to her mobile phone yesterday or respond to a text message.
Ivory Coast, which defaulted on bonds in 2011 amid a post- election crisis, has the best credentials after embarking on economic reforms, RMB's Ramkhelawan-Bhana said. Tanzania could capitalize on Kenya's success with its own issuance if it gets a rating, she said.
Bond buyers are taking on more risk as Fed Chair Janet Yellen pledged to keep interest rates close to zero for a "considerable time" on June 18 and the ECB cut its benchmark rate this month to a record 0.15 percent.
"We are going to see quite a bit of issuance in the next six months," Ramkhelawan-Bhana said. "As the tightening cycle starts, then it starts to get a bit more tricky."