Will A Zambian Default Risk Worsen Credit Risk Premium For SSA Issuers?

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Friday, September 25, 2020/ 02:00PM / United Capital Research / Header Image Credit: DW


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A few days ago, the republic of Zambia became the first country in Africa to default on a debt in the wake of COVID-19. This was as the country's ministry of finance announced a consent of solicitation to suspend interest payment (worth $120.0mn) on its three outstanding Eurobonds (totaling $3.0bn) till April-2021. Following the announcement, the prices of the country's outstanding Eurobonds plunged to nearly half their face value.

 

Notably, the situation in Zambia was unsurprising to us as we had earlier noted in our H2-2020 outlook report that debt sustainability was a big concern for African countries in the wake of COVID-19, especially with regards to external borrowings amid declines in the price of key export commodities of most African countries.

 

Although, Zambia was in a dire situation compared to peers since the country had just 1.8-month worth of import cover and a debt to GDP ratio of about 88.6%. Notably, this development draws us to Angola, which also has a worrisome debt to GDP ratio of over 100% and projected by Angolan government to further hit 120% by the end of 2020. Even though Angola has negotiated $6.0bn in debt relief with some of its lenders and promised to fulfill its debt obligations, the country remains at a high risk of default on its 5 outstanding Eurobonds, especially if crude oil prices fall further. While we expect these SubSahara African sovereigns to ultimately service their obligations, the Zambia and potentially, the Angolan, default worries may worsen the credit risk premium for SSA issuers in the international capital market

 

Top African Stories

  • Zambia Inflation Quickens for the first time in Four months. Read more
  • EU injects US$5.9m in Kenya's cassava value chain, launches US$1.1m agribusiness challenge in Zambia. Read more
  • South Africa: Banks consider more relief for borrowers hurt by COVID. Read more
  • USAID Awards $2.6m Grants to Solar Energy Companies in SubSaharan Africa. Read more
  • South Sudan unveils three-pronged approach to fix its economy. Read more
  • Angola banks to convert foreign currency mortgages to Kwanzas. Read more
  •  NNPC driving Nigeria's biofuel agenda: Nowhere near 2020 target. Read more
  •  Ethiopia removes sugar subsidy as production, importation costs rise. Read more

 

Looking Forward

 

Angola

Benchmark interest rate - September 28th

 

Ghana

Sept-2020 MPC Meeting - September 28th

 

Kenya

Q2-2020 GDP Report-September 30th

Sept-2020 Inflation Report-September 30th

 

Morocco

Q2-2020 GDP Report- September 26th

 

Nigeria

Aug-2020 Private Sector Credit- September 27th

 

South Africa

Q2-2020 Unemployment Data- September 28th

Aug-2020 Private Sector Credit- September 30th

Aug-2020 Inflation Report - September 30th

Aug-2020 Trade Balance - September 30th

Aug-2020 Monthly Budget Balance - September 30th

 

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     Proshare Nigeria Pvt. Ltd.


    Proshare Nigeria Pvt. Ltd.


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