Eurobonds from Sub-Saharan Africa to perform better in 2019

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According to a poll by Reuters, eurobonds from Sub-Saharan Africa will perform better in 2019, even though debt levels in some parts of the region are increasing. This is as a result of the diminishing prospects for further U.S. interest rate hikes.

Nine of the ten analysts surveyed said it would be a better year than last, but opinion was split on which country would dominate the overall improvement.

The Head of Africa Strategy at Standard Chartered, Samir Gadio, said “it is likely that African Eurobonds will offer better returns this year after a negative performance in 2018. This probably reflects their high-yield status, cheap valuations at the end of 2018 and lighter investor positioning at the time.

The U.S. Federal Reserve revealed that its three-year drive to tighten monetary policy may be at an end amid a suddenly cloudy outlook for the U.S. economy. The announcement could support investor interest in Africa’s debt market.

Nigeria’s 30-year $460 million Eurobond, issued in November as part of a $750 million fundraising, currently yields a healthy 8.169 percent.

Investment bank JPMorgan raised its exposure to emerging market local bonds and currencies after the U.S. Fed shifted to a more dovish stance, a development that can be translated as a positive sign for the region.

Head of Rich Management in Nairobi, Aly-Khan Satchu noted that a lot depends on the Fed’s rate trajectory. The U.S. central bank held interest rates steady and discarded its promise to gradually increase interest rates.

Top African crude exporters like Nigeria and Angola have suffered in recent years from oil price weakness that has curbed into much-needed revenues and exposed weaknesses at state-owned companies. The Reuters poll  listed Angola, Nigeria and even heavily-indebted Zambia as places to look for value in 2019, after a year of disappointing returns for net oil exporters compared with importers on the continent.

In a sale that was three times oversubscribed, Nigeria raised $2.86 billion in Eurobonds three months ago to help fund its budget deficit.

Angola, Africa’s second-largest crude producer is sizing up a shot at the bond market after securing an International Monetary Fund deal.

Analysts said African Eurobonds had already posted impressive returns early this year and were generally performing better than other emerging markets.

However,  Gadio warned that if U.S.-China trade talks yield positive results and better risk sentiment, tighter spreads and supply pressure could constrain bond gains later this year.

Kenya is planning to issue a bond to help fund its 2018-2019 budget deficit- a banking source valued it at $2.5 billion, while Ivory Coast is planning to raise up to 1.4 trillion CFA francs ($2.5 billion) this year on regional and international markets.

Gadio said “investors will likely look for pockets of relative value in countries that still trade relatively wide to immediate peers and/or have room to outperform. This appears to include Nigeria, Cote d’Ivoire and Cameroon”.


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