Uganda's bond decision a bold move

by Elayne Wangalwa 0

The East African country’s central bank governor, Emmanuel Mutebile, said the nation is not yet prepared for a debut in the global capital markets.

According to Roy Daniels, head of Africa trading at RMB, this is a bold move from Uganda as an unsystematic increase in interest rates represents an economic risk, and consequently triggers concerns over debt sustainability.

“I think there have been too many [issuances of Eurobonds] so the African continent’s exposure to sovereign debt is now growing and is of concern. There will be no debt write-off,” Daniels said.

“In the past we have had these loans, we have had these debt write-offs which have helped them [countries partaking in sovereign bonds]. That is not going to happen this time, you will have to repay the money you borrowed. There is no soft landing on these so the amount we keep borrowing is growing all the time and these debts become a concern for Africa.”

(READ MOREWeighing up Africa’s issued Eurobonds)

Africa, which first appeared on foreign fixed income investors’ radars in 2001, has seen its allure increase.

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

Kenya was the latest to follow the growing trend. The country secured bids worth 8.8 billion US dollars counter to the government’s target of two billion US dollars, making it the largest debut for an African country in the sovereign bond market.

To build up nascent capital markets, Daniels said countries should focus on issuing bonds in local currencies.

“We are not issuing local currency so if I issue a bond in Ghana shillings [cedi] or in Nigerian naira, it is a local currency bond. People have to sell dollars to then buy the currency. There is a greater demand for the currency, it helps the currency a little bit and then they buy the local currency bonds,” he said.

“When we do the sovereign bonds, it is dollars for bonds. There is no buying of the local currency. My concern is that when we [are] under pressure and when the first person bolts through the door, the door becomes very small when the rest of them need to get out of there.”