Debt capital markets: Nigeria paves way for post-tapering Africa debuts

Federal Republic prices $1 billion bond; Ghana returns; banks working on Kenya debut

Nigeria’s return to the Eurobond market last month is encouraging news for other African sovereigns hoping to issue their first dollar bond benchmarks or return to the market. The $1 billion deal was the first sovereign Eurobond issuance from sub-Saharan Africa following news in May and June on tapering quantitative easing in the US.

Priced on July 2, Nigeria’s second-ever Eurobond came just two weeks after announcements accompanying the Federal Reserve’s June 18/19 policy meeting caused spikes in emerging market bond yields globally. As Euromoney went to press, Ghana and Kenya were among the other African sovereigns preparing dollar deals.

 Jan Dehn, head of research at emerging market specialist fund manager Ashmore
Jan Dehn, head of research at emerging market specialist fund manager Ashmore
Market participants say Nigeria’s deal, which attracted more than $4 billion of demand, indicates continued investor interest in sub-Saharan Africa. Indeed, speaking in late July, Jan Dehn, head of research at emerging market specialist fund manager Ashmore, still tips sub-Saharan Africa to produce more new Eurobond debuts over the next decade than any other emerging region.

"We had a fantastic response to the roadshow for Nigeria’s deal," says Maryam Khosrowshahi, head of public sector coverage for CEEMEA at Deutsche Bank, which managed the issue along with Citi. "Investors were very impressed with the country’s macroeconomic performance and the progress on structural reform since the launch of its first international sovereign bond in January 2011."

Nick Samara, a debt capital markets official at Citi, cites examples of recent investor-friendly initiatives in Nigeria, including efforts to diversify the economy away from the oil sector, progress on banking-sector reform, and the creation of a sovereign wealth fund.

Samara says Nigeria’s status as the world’s 10th-largest oil producer and a regional economic powerhouse gives it unique appeal for investors. However, he says, several macroeconomic strengths – impressive growth, declining inflation and relatively low debt-to-GDP levels – are mirrored across much of sub-Saharan Africa.

As Euromoney went to press, Ghana – which opened the market for sub-Saharan African dollar issues in September 2007 – was expected to be next out with a deal, having completed investor meetings across Europe and the US in late July ahead of a planned $1 billion liability management exercise designed to extend the country’s debt maturity profile and reduce funding costs.

Also in the pipeline is a potential inaugural issue from Kenya, which in early July requested banks to pitch for mandates on a $1 billion Eurobond, and a potential return from Senegal, which previously issued dollar bonds in December 2009 and May 2011. Tanzania and Mozambique, both on investors’ radar because of offshore gas discoveries, are rumoured to be considering Eurobond debuts.

"As an overall package, coming to [the Eurobond] market represents a milestone for African nations," says Samara. "It raises a country’s profile, introduces new stakeholders and new processes, and allows governments to optimize their funding costs, as well as providing investors with a benchmark not just for the country but also for the region."

Annual GDP growth for sub-Saharan Africa has averaged more than 5% over the past decade, and current forecasts from the IMF put the figure at 5.6% for this year and 6.1% next year, including underperformer South Africa. That is well above the global average of 3.3% and 4% respectively, and higher than for any other region except developing Asia.


Debt relief schemes in the early 2000s have helped ensure that, while few can match Nigeria’s debt-to-GDP ratio of 17.8%, nearly all boast levels well below 50% and the regional average at end-December stood at 33.4%. The value investors place on such metrics is evidenced, says Samara, by single-B rated Rwanda accessing the global bond market for the first time this year.

Rwanda’s $400 million 10-year deal, priced in late April, was nearly nine times oversubscribed and was cited by many commentators as an indicator that global bond markets were overbought. Analysts and bankers agree, however, that while the yield of 6.875% was low by historical standards, investor interest was justified by Rwanda’s record of fiscal prudence and macroeconomic outperformance.

"The [Rwanda] deal undoubtedly benefited from very good timing and in hindsight may have been mispriced, but Rwanda has sound fundamentals in the form of very strong growth prospects and relatively low debt levels," says Shilan Shah, Africa economist at Capital Economics in London.

Certainly, bankers report that investors’ enthusiasm for bonds from Nigeria and previously from Rwanda – one of the region’s smaller economies, and one with no big petroleum resources – has encouraged other sub-Saharan African sovereigns to push ahead with plans to tap global bond markets before the end of the year.

As Dehn adds, global bond markets offer an opportunity to break dependence on donor and multilateral funding: "Having a sovereign yield curve is a core element in the financial infrastructure of any country, and getting bond market access is as much about building that infrastructure and integrating Africa into the global capital markets as it is about raising funding."