LONDON, Dec 22 (Reuters) – Sub-Saharan African governments will return to international capital markets in 2021 with Ghana, Kenya and Nigeria to issue bonds as investors once again are expected to embrace more risk, the Institute of International Finance said.
Emerging market bond issuance has sprung back to life after the fallout from the coronavirus pandemic roiled global markets in the spring and saw bond sales from many developing nations grind to a halt.
Yet frontier markets – smaller and often riskier emerging markets – had still some catching up to do, the IIF said in a note to clients.
High-yield frontier market sovereign issuers have increasingly been accessing international capital markets, accounting for nearly 30% of issuance in the second half of the year, the IIF said in the note.
“However, spreads for (high-yield) issuers — particularly from Africa — remain elevated,” it said.
The premium investors demanded on the JPMorgan EMBI global index for African issuers fell back to below 600 basis points in late November as benchmark U.S. Treasury yields plunged to well below pre-crisis levels, the IIF noted.
In November, Ivory Coast became the first sub-Saharan African sovereign to issue a pandemic-era Eurobond.
Kenya and Nigeria had also seen their spreads narrow close to pre-pandemic levels, though others found the premium was still 10% above those levels.
The association expects that more high-yield frontier market issues will “look to access global capital markets to lock in lower borrowing costs, as their domestic markets might find it hard to absorb additional issuance.”
But with some frontier markets such as Zambia now trying to renegotiate their debt with creditors, investors will be very much focussed on debt dynamics, the IIF said.
(Reporting by Karin Strohecker; Editing by Lisa Shumaker)
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