ECR: Senegal remains riskiest African sovereign in Euromoney Country Risk survey
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ECR: Senegal remains riskiest African sovereign in Euromoney Country Risk survey

Economists still consider Senegal to be the riskiest Sub-Saharan issuer of sovereign debt, according to the latest results of the Euromoney Country Risk Africa survey.

The results, which coincide with the pricing of Senegal’s $500 million issue last week, show that Senegal received a lower overall score than the three other African sovereign issuers across a range of economic, political and structural risk criteria.

Sub-Saharan African Eurobond Issuers ECR Scores
Country Sovereign Yield ECR Rank Political Structural
Ghana 6.25% 85 46.5 37.1
Gabon 5.50% 88 32.1 56.5
Nigeria 6.25% 92 33.8 45.3
Senegal 8.00% 127 34.6 28.8
Sources: ECR and Euroweek (All ECR scores out of 100; Bond pricing of 2017s as of 12/05/2011)

Last week, the Republic of Senegal priced its $500m 10 year note with a 9.125% yield, the tight end of price guidance of a yield area of 9.25%, and around 100bp inside its own curve, Euroweek reported. Of the sub-Saharan African countries, only Senegal, Nigeria, Ghana and Gabon have international bonds outstanding. Of these, Senegal is the highest yielding, with its 2014s currently trading around 8%, according to Euroweek. By comparison, Ghana’s $750m 8.5% 2017s trade around 6.25%, Gabon’s $1bn 8.2% 2017s trade around 5.5% and Nigeria’s recently placed $500m 6.75% 2021s trade around 6.25% (see table above).

In the ECR survey, Ghana was the highest placed Sub-Saharan African issuer, with an overall score of 44.30. Gabon came 2nd with a score of 43.40, closely followed by Nigeria with 42.30. These scores contributed to the sovereigns being ranked 85th, 88th and 92nd respectively in the global ECR table.

In contrast, Senegal’s ECR score was over 10 points lower than third placed Nigeria. Senegal’s overall score is 32.10, meaning that the country finished 127th in the overall table.

One possible explanation of both the market and ECR economists’ bias against Senegal could be the country’s status as an energy importer. Nigeria and Gabon are net exporters of oil and each country’s economy has benefited from high crude prices in recent years, while Ghana will experience its first full year of oil production from its offshore Jubilee field in 2011.

In contrast, rising oil prices have pressurised Senegal’s balance of payments: the current account deficit has widened as oil prices have risen and now stands at a worrying 10% of GDP. Hard currency receipts from oil exports also boost a sovereign’s ability to pay the coupons on its debt. Nigeria had foreign currency reserves of $34 billion in March, dwarfing the value of its $500 million eurobond. In contrast, Senegal is estimated by the IMF to have gross reserves of just $2 billion.

None of the issuing African sovereigns is perceived to be risk-free by economists. Gabon’s political risk score fell this month after opposition leader Andre Mba Obame declared himself to be president on May 5th, citing the popular uprisings in Tunisia and Cote D’Ivoire as inspiration. Nigeria’s low score of 33.8 for political risk reflects the recent post-election riots which occurred in the country’s Muslim northern provinces, while its public finances have come under increased scrutiny following the steady depletion of the country’s Excess Crude Account since 2007. Ghana’s politicians must also prove that they are capable of creating a legal framework capable of husbanding the country’s resource wealth.

The African sovereign Eurobond market is still in its inception, leaving investors few issuers to choose between. Over time, this may result in the yield on Senegal’s new issue converging with those for Nigeria, Gabon and Ghana.

One area where Senegal has already converged with its rivals is in its score for political risk. Here, Senegal’s proud history of never having had a successful military coup since the sixties has seen it awarded a score in line with Gabon and Nigeria. Some analysts believe that its score in this category should be higher. Samir Gadio, an analyst at Standard Bank, says: “Senegal’s robust institutions and long established mixed party political system mean that it is well ahead of the curve compared to other African sovereigns.” In the long run, Senegal’s political stability may come to be seen as more important than its lack of resource wealth in the eyes of international investors.

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