Investors could be forgiven for being surprised by the low price paid for Namibia’s debut Eurobond, marketed to investors in Europe and the US last week.
Critics have argued that Namibia’s $500 million 10-year bond was too cheap for one of sub-Saharan Africa’s few investment grade countries (A3 Moody’s, BBB- Fitch).
Namibia began trading around 330 basis points over swaps, 160bp wide of BBB+ rated South Africa, its closest comparable. BB rated Gabon trades around 350bp over.
But in Euromoney’s survey of country risk, which measures economists’ views of country risk across 186 markets globally, Namibia scores well ahead of other African Eurobond issuers like Nigeria, Gabon and Ghana (see chart).
In September, Namibia’s country risk score improved by 1.5 points, following the discovery of massive oil reserves off the country’s southern coast in July. The discovery of the fields, estimated to contain 11 billion barrels of high-quality crude oil, has the potential to transform Namibia’s $15 billion economy.
Sub-Saharan African sovereigns:
Credit rating and country risk score (qualitative) |
 |
| Source: Euromoney Country Risk. All ratings are from S&P excluding Namibia (Fitch) |
In the survey, Namibia received improved scores from economists for employment, government finances, bank stability and monetary policy, while its score in the survey’s market-led access to capital markets component also improved by two points.
Sub-Saharan African sovereigns
political risk assessment: top 10 |
| Country |
Political risk score (100) |
| Namibia |
62.4 |
| South Africa |
60.8 |
| Botswana |
58.5 |
| Mauritius |
52.8 |
| Seychelles |
51 |
| Ghana |
47.4 |
| Mozambique |
46.7 |
| Liberia |
45 |
| Rwanda |
44.4 |
| Guinea-Bissau |
44 |
| Scores as of September 2011 |
Stephen Bailey-Smith, an analyst at Standard Bank, says: “Namibia is a great credit. The country is the Norway of Africa – a dynamic economy with a small population and large oil reserves to come online. I can see it eventually trading through South Africa.”
With an unbroken history of democratic rule since 1990 and only 16% debt-to-GDP, the world’s fourth largest producer of uranium, analysts believe the issue’s spread could tighten to price well inside SSA issuers like Gabon and Ghana in the medium term.
Namibia used the post-summit rally in EM debt to issue its debut Eurobond. The gloomy outlook for the world economy may have played a part in the cheap price investors paid for the 10-year issue.
A track record of democratic rule, sound governance and economic freedoms means Namibia scores highly across a range of economic and political indicators.
In Euromoney’s survey, Namibia’s scores for corruption, institutional risk and government stability are the best in the region.
When asked to rate the risk posed to the economy by employment, economists awarded Namibia a superior score to South Africa. Namibia also scored well in the section of the survey dealing with political risk, in which it received the highest rating of any African country.
Namibia came sixth out of 53 countries in Africa in the latest good governance index by the Mo Ibrahim Foundation. It also received a positive assessment from Freedom House (two out of seven).
Five reasons why Namibia’s 10-year Eurobond could strengthen
To find out more, visit www.euromoneycountryrisk.com.
