Eurobond issuance on hot pursuit in Africa


Zambia, as a case in point, has had a successful first Eurobond, and the country is now testing the market for additional investment options.

There have however been claims that investors involved in the first Eurobond had been short changed due to various factors that played such as fiscal deficit, a rise in treasury yields and retreated copper prices during the time period.

(READ MORE: Zambia seen paying 8%-plus yield on new dollar bond)

“Unfortunately, the [people] at the central bank don’t have much say about the copper price, but it has come off slightly, and we have seen a bit of weakness in the price. I think that they introduced some measures in the past – the central bank and the government of Zambia – that the market didn’t really like and certainly the investor market,” Roy Daniels, head of Africa training at Rand Merchant Bank, told CNBC Africa.

“They’ve since retracted those regulations, the IS33 and the IS50, making it easier now for business in Zambia. Those are positives. The currency was [however] under huge pressure. It went from 580 up to a high of about 644. Something had to be done. The market was expecting a lot of new regulation coming in, more controls, and the central bank went the other way, which has helped the currency firm a bit.”

Daniels added that there is however still significant pressure on the kwacha, but anticipates that it could still test slightly higher.

Until such time that what the impact on the reserves from the intervention of the currency to protect it can be seen, as well as the impact of the Eurobond, Zambia’s economy still remains delicate.

“They’re testing the waters on the Eurobond issuance, [and] I think there’s a chance they’re going to go ahead with it. It will be well subscribed. I think it will be promising. I think we will see an issuing in the near future.”

(READ MORE: Slow takeoff of Eurobond in Africa)

In West Africa, despite Ghana’s promising economic prospects it continues to experience tough challenges in its market, resulting in its one billion dollar Eurobond being placed on hold.

“I think in Ghana, the story is looking rather testy at the moment. The currency remains under pressure. The import cover has reduced to 1.3 months, well below their three-month required threshold. They did mention that as a member of the International Monetary Fund, they could go to them for assistance, but then with the IMF comes the conditions of the loan,” Daniels explained.

“Our concern would be they [the IMF] look at the government deficit and public sector wage bill and say ‘that’s where the savings have to come from.’ I think if [Ghana] went to market the Eurobond issue, they might not like the rate at which it comes out.”

(READ MORE: Ghana’s fiscal pressures could weigh on a Eurobond pricing)

Kenya, like Ghana, has also experienced delays in bringing its Eurobond to market against a backdrop of socio-political disturbances.

“I would anticipate [Kenya] is probably going to be close to the seven per cent mark. I think that market is disappointed by the continuous delays, and now we’re into April. It’s certainly a sizeable Eurobond that they’re looking to issue, at one and three quarter billion dollars, the biggest that we’ve seen in Africa. The Kenyan story is [however] a positive one,” said Daniels.

“Inflation came down slightly, so there are a lot of positives in Kenya. Our concerns would be around the social unrest that’s creeping in there, and what measures that the government’s going to take to control that.”