Weighing up Africa's issued Eurobonds

by Elayne Wangalwa 0

This has seen a surge in borrowing by sub–Saharan African countries.

The Eurobond is issued by the International Finance Corporation (IFC). The lender, a member of the World Bank Group, is the largest global development institution focused solely on the private sector in developing countries. 

South Africa, Angola, Côte d’Ivoire, Gabon, Ghana, Namibia, Nigeria, Rwanda, Senegal, Seychelles, and Zambia have been able to raise funds in international debt markets. Kenya is the latest to follow this trend.

(READ MORE: Effects of the Eurobond on the Kenyan shilling)

Kenya has secured bids worth 8.8 billion US dollars counter to the government’s target of 2 billion US dollars, making it the largest debut for an African country in the sovereign bond market.

“It has been a long time coming. Kenya has been waiting since the end of last year for this Eurobond issuance. There were some problems in the country that needed to be addressed before the issue could go ahead,” Roy Daniels, Head of Africa trading at RMB told CNBC Africa.

The East African nation is looking to help seal the budget deficit of 4.7 billion US dollars and invest in transport and energy infrastructure with the Eurobond sale.

Kenya has been planning its first sovereign 10-year dollar-denominated Eurobond but the issuance has been delayed repeatedly by international market instability and also legal setbacks.

“When people are looking for investment of this Eurobond, they are looking for sound fiscal policy, they are looking for growth, they are looking for countries which are making steps towards infrastructure bolds and this is what Kenya is doing and why it is so attractive,” Daniels said.

According to Mark Bohlund Senior Economist sub-Saharan Africa at IHS, the issue is attracting high demand because it comes in two tenors in spite of a terror attack that killed at least 60 people in Kenya’s coastal city on Sunday and Monday night.

“The five year maturity and the 10 year maturity have allowed investors with different maturity preferences to invest in the bond,” Bohlund said.

African countries have been able to sell bonds at lower interest rates compared to European countries

The factors that are thrusting the sale of the Eurobond by African countries include flexibility by IMF limit on borrowing at unsubsidized for low income countries, reduced debt impediments, large borrowing needs and the low borrowing costs.