SSA Q1 results: Africa takes centre stage in the hunt for yield

Matthew Turner
Published on:

Improved access to capital markets (ATCM) and bank finance had a positive bearing on country risk scores for much of Africa during the first quarter of 2013. Country risk scores for Namibia, Nigeria, Kenya, Angola, Mozambique and Tanzania all rose in Q1.

In the quantitative section of the survey, the increased number of African sovereigns with credit ratings and the improved sentiment towards African borrowers in international capital markets are boosting the scores of African sovereigns.

In November 2012, Moody’s expanded its African rating coverage, assigning new credit ratings to Zambia, Nigeria and Kenya. Botswana remains Africa’s only A-rated sovereign but 19 African sovereigns are now rated B or higher.

Meanwhile, 17 out of 54 countries in Africa are expected to have issued foreign currency-denominated instruments on the international markets by the end of the year, up from 13 in 2011. Angola, Rwanda, Nigeria and Kenya are all planning to make debut launch issues in 2013.

Kenya’s debut and benchmark Eurobond is expected to be issued in the latter half of this year, and Rwanda managed to raise $400 million in the country’s debut dollar bond in April.

The latest issuance by sub-Saharan Africa (SSA) sovereigns reflects the pent-up demand for the dwindling pool of hard-currency emerging market sovereign debt.

The increase in African bond issuers this year was reflected by the higher scores in the survey’s ATCM indicator.


The ability of SSA sovereigns to finance themselves on the international bond markets is also having a positive bearing on the scores for the region’s structural assessment criteria.

Several SSA bond issuers aimed to raise finance purely to invest in infrastructure. In Rwanda’s case, the $400 million bond was issued with a yield of 6.875% with a 10-year maturity, to principally refinance infrastructure projects.

Rwanda central bank governor John Rwangombwa, in an interview with Euromoney Country Risk, says: “We came to the market for one specific reason: to refinance infrastructure projects, so we didn’t come to the market for the sake of borrowing for the budget deficit.

“We wanted really to finance various economic and structural projects, and the cost of these projects added up to $400 million.”
However, several SSA countries did not match the strides made by Africa’s debut bond issuers in the rankings last year.

South Africa retained its position as Africa’s safest economy in Q1, but ECR contributors have shown greater anxiety in the economy after the country endured higher levels of risk last quarter. The sovereign’s ECR score fell by 0.7 points (out of 100) to 56.2 in Q1 2013.

A closer inspection of South Africa’s ECR score demonstrates that multiple factors were to blame for a higher risk environment. Labour unrest, sluggish economic growth and widening political divisions led to the sovereign’s credit rating being downgraded in 2012.

Ghana, on a score of 44.2, lies further adrift from SSA’s top three performers. Economists downgraded the sovereign by 0.6 points in 2012.

Of most concern to ECR analysts in Q1 is the country’s widening fiscal deficit and rising public debt. The country’s government finances indicator declined by 0.2 points to 3.8 points (out of 10) and remains the country’s most pressing rating constraint, according to ECR analysts.

Ghana’s fiscal slippage also had a negative impact on the country’s political assessment, after country risk scores fell across the
country’s corruption (-0.1), institutional (-0.1) and transfer risk (-0.1) indicators in Q1.

This article was originally published by Euromoney Country Risk, to find out more register for a free trial at Euromoney Country Risk