Africa faces fewer options for raising money as ratings falter

Monday November 13 2017

Ngong Road in Nairobi under construction. Countries are seeking to raise cash mainly for infrastructure projects. PHOTO FILE | NMG

By Allan Olingo

The African region is increasingly finding it difficult to raise money, with governments ditching the Eurobond market in favour of syndicated loans as country ratings remain shaky.

At the start of this year, Kenya, Tanzania, Ethiopia, Ghana and Rwanda had indicated they would be issuing Eurobonds but so far, none of them has. They continue to battle negative ratings, economic growth slowdown and negative investor sentiment.

This year it is only Ivory Coast that entered the international market in May, attracting almost $10 billion in bids for its Eurobond auction. The yields for the African bonds have been largely flat in the past month, with Kenya’s Eurobond yield at a two-year low.

It is down by 33 basis points in the past week to 5.93 per cent on the secondary market, from 6.54 per cent in October, signalling that foreign investors may be jittery about the country’s long-term prospects.

Last Tuesday, Kenya's Treasury Cabinet Secretary Henry Rotich said they would still issue another Eurobond whose proceeds will partly be used to repay a $750 million syndicated loan issued two years ago, and maturing in 2019.

“We are considering tapping the international debt markets to either finance infrastructure development or for liquidity management” said Mr Rotich, adding that the Treasury still does not have a timeline for the new bond issue.


READ: A decade after write-offs, Africa sliding back into debt trap

Extend loan maturity

It has also emerged that most investors in the syndicated loan have agreed to extend its maturity by six months from October this year to April 2018, meaning the new Eurobond could be floated before the end of the first quarter next year.

Early this year, Dar es Salaam had indicated that it would be testing the international markets with a debut Eurobond under President John Magufuli.

Three months later, the country would reveal it was in discussions with Credit Suisse for a $300 million loan meant for its projects. The funding was received mid this year, putting brakes on the Eurobond market.

“We had initiated talks with London-based Credit Suisse for a $300 million loan. We are also in separate talks with other lenders, including the Kuwait Fund for Arab Economic Development, the Abu Dhabi state fund Mubadala Development and the Opec Fund for International Development for other concessional loans to fund these projects,” Tanzania’s Minister of Finance and Planning Dr Philip Mpango said, adding that they were looking at raising $936 million in the current financial year to fund infrastructure projects.

The EastAfrican has learnt that Tanzania failed to acquire a rating agency that would see it get a fair deal, forcing the country back to the syndicated loans market with a bias towards concessional loans.

“The process for the Eurobond was never finalised after we encountered a number of challenges especially in acquiring a rating agency,” Bank of Tanzania economist Genes Kimaro said.

Deepak Dave, an analyst at Riverside Capital, a Nairobi-based risk management firm, said that for regional economies, the era of cheap Eurobonds could just be over mostly because of the current market dynamics.

“The market has witnessed an artificial depression of the risk-free rate. Debt ceiling pressures have made some countries’ default chance almost a reality.

Politics and poor fiscal management have also seen investors place a higher risk premium on interest rates, making these bonds a gamble for African countries,” said Mr Dave.

READ: African countries struggle to repay bonds over openness issues

Kenya loans

Kenya has in the past year received more than $1.2 billion in syndicated loans arranged by Standard Charted Bank, Citi Bank and Standard Bank as it struggles to persuade investors to take up its Eurobond which has failed to take off, with the just concluded election not offering a conducive environment.

“Kenya has faced many pre-election uncertainties that would reflect badly on such a bond. However there is still appetite for these bonds and the country could just package it well in its prospectus,” head of Quantum Global Research Mthuli Ncube said.

Francis Omondi, an economics don at Kenyatta University said that currently, the charts are showing that African countries’ debt and debt sustainability has become an issue, especially given the recent economic growth slowdown, falling commodity process, currency devaluations and general uncertainty.

“In the past, the market was very receptive to countries that ventured into the international sovereign markets because they rode on the Africa Rising narrative.

“However, this rise stalled and fell with a drop in commodity prices, particularly for the resource-dependent nations, putting pressure on local currencies and stagnated growth. The ratings agencies negative outlook also did the African countries in, forcing them back to syndicated loans that are slightly more expensive,” said Mr Omondi.

READ: Kenya goes for bond to rein in interest rates