African countries struggle to repay bonds over openness issues

Saturday December 12 2015

A view of the Kigali Conventional Centre from the Kacyiru roundabout.  PHOTO | DANIEL S NTWARI

Money raised from Rwanda’s dollar bond in 2013 was used to repay loans for construction of the Kigali Convention Centre. It is set to be completed early next year. Zambia and Rwanda have been transparent about the details of their bonds, how they were raised, the commissions earned, and the breakdown of how they were spent. PHOTO | DANIEL S NTWARI | NATION MEDIA GROUP

By ALLAN OLINGO, The EastAfrican

Three years ago, international investors were little concerned about the transparency of sovereign bonds, in favour of higher payouts. However, this is changing as countries find it difficult to issue bonds that are being considered risky due to transparency and accountability issues.

Some sub-Saharan African economies are struggling with rising interest repayments on their international bonds. Falling commodity and oil prices, as well as falling currencies, have led to higher repayments on their Eurobonds as investors demand transparency on their listings and spending of the proceeds.

Over the first nine months of this year, sub-Saharan African economies issued international bonds worth $2.9 billion, compared with $5.9 billion in the same period in 2014.

However, corporate sovereign bonds from sub-Saharan Africa stood at $2.5 billion as at September, compared with $250 million in the same period last year. The trend indicates that investors have more confidence in corporate organisations than government-floated notes.

Ghana, Zambia, Nigeria and Kenya are among the economies that are seeing a rise in their interest repayments.

Ghana is already looking at a new Eurobond in January worth $500 million, just a few months after floating a 15-year $1 billion bond at a higher yield. The bond was priced at 10.75 per cent higher than the 9 per cent, Ghana initially wanted, with about $400 million of it guaranteed by the International Development Association, a member of the World Bank Group.

Ghana’s Finance Minister Seth Terkper said the country has few options for financing the rolling over of other loans, adding that they had managed to raise money on reasonable terms in a rather difficult market.

The country said it will use $750 million for capital projects and counterpart funding, with the remaining $250 million as seed capital for the Ghana Infrastructure Investment Fund.


Two years ago, Mozambique raised $850 million in an international bond to purchase tuna boats, but it later emerged that the proceeds were used to purchase naval boats and training gear.

The interest on the bonds, issued at 8.5 per cent, which are set to mature in 2020, rose by 6 per cent when the news of misspending broke. It also emerged that only $200 million was spent, with the Mozambique government refusing to disclose where the rest was.

In 2012, Tanzania and Angola issued unrated $600 million and $1 billion private debt respectively, without disclosing the details.

Both countries’ bonds were on a floating rate, which has left them exposed on their repayments.

Zambia and Rwanda have been transparent about the details of their bonds, how they were raised, the commissions earned, and the breakdown of how they were spent.

In 2013, Rwanda raised $400 million from its debut dollar bond at the lowest yield of 6.875 per cent. The country said it spent $200 million to repay loans for the Kigali Convention Centre, and fund a development plan for RwandAir. A further $150 million was spent on a hydropower plant.

In 2012, Zambia raised $750 million from its debut international bond at a rate of 5.375 per cent, and said it would use the money for energy and transportation infrastructure.

In July, the country raised a further $1.25 billion at a rate of 9.85 per cent, and said it would use $120 million to stem its currency volatility, with $400 million going towards its energy and roads projects.

It also allocated $268 million to debt swap, $21 million to agriculture, $40 million to maritime equipment, $20 million to water projects, $65.5 million to development of education and health, and $45.2 million to youth empowerment.

The latest bond has increased the country’s interest payments from about $125 million a year, to more than $240 million.