African Countries Face Wall of Sovereign Debt Repayments

Friday, February 14, 2020 / 12:16 PM / By FDC / Header Image Credit: African Voice Newspaper

Bond issuance has surged in recent years, creating unease. African governments have borrowed foreign currency debt at a record rate in the past few years, as investors flock to nations such as Egypt, Nigeria and South Africa in search of higher yields. Much of this debt falls due over the next decade, creating a "wall" of sovereign debt repayments, in the words of Gregory Smith, emerging markets strategist at M&G Investments.

Some economists and strategists, including Mr Smith, think the scale of the repayment could prove overwhelming. "For Zambia or Gabon, making a $1bn payment is a pretty big deal," said John Ashbourne, senior emerging markets economist at Capital Economics. "If the repayment date comes up when a currency is doing badly or there's risk-off sentiment, they're pretty exposed." Still, there are reasons to remain confident that these countries will meet their obligations.

There is a growing number that have repaid their foreign bonds, M&G highlights, including South Africa, Morocco, Tunisia, Egypt, Gabon, Ghana, Kenya and Nigeria.

South Africa led the way for such borrowing in 1995, but since the global financial crisis in 2008, issuance has surged from neighbouring nations. Twenty-one African countries now have outstanding sovereign eurobonds - foreign currency-denominated sovereign debt - totalling $115bn, according to M&G Investments, and this trend has accelerated since 2017.

The oil-rich west African nation of Gabon recently attracted institutional investors to a fourth international debt increase, priced at a yield of more than 6 per cent and maturing in 2031. The country has drafted an investment plan to diversify away from oil, hence the need for a capital injection.

Mr Ashbourne said countries had enjoyed good timing by issuing at a time of very low yields, but added there is "no telling" where rates will be when they come to refinance.

Related News

1. African Countries Scramble for the Eurobond Market
2. A Return to the Eurobond Market
3. Narrower Rate Differential Favouring Eurobonds
4. A Likely Return To The Eurobond Market By FGN In 2020
5. A Quiet Trading Session as Global Oil Pressure Weigh on Nigerian Sovereign Eurobonds
6. What is Driving Early Eurobond Redemption by the Banks?
7. Nigerian Eurobonds Weaken as Trade war Depresses Oil Prices
8. CP Market Gains Traction As Investors Rebalance Portfolios
9. Anchoria Fixed Income Monitor: Undulating Interbank Rate
10. ACCESS to List Its N15bn 15.50% Fixed Rate Unsecured Climate-Credential Green Bond on LuxSE
11. Alternative Investment Options Spur Bearish Sentiments as Average Yield Advances to 3.9% WoW
12. Derivatives Market Will Create Jobs and Attract Additional Capital Inflows - Bola Onadele
13. Invest in The Nigerian Breweries Plc Series 5 and Series 6 Commercial Paper
14. Invest in Flour Mills Tranche A and Tranche B Bonds Issuance Programme
15. Hike in CRR Fuels Bearish Sentiments as Average Yield Inches to 3.7%, NB CP Available