Côte d’Ivoire returned this week to the international debt markets as the first sub-Saharan African sovereign issuer in 2015, in a deal that indicated strong investor appetite for exposure to the region.
The country issued a $1 billion Eurobond at a yield of 6.625%. It was four times oversubscribed, with a "negligible" new-issue premium, a testament to Côte d’Ivoire’s strong fundamentals, say bankers.
The latest issue has an amortizing principal in 2026, 2027 and 2028. BNP Paribas, Citi and Deutsche Bank were joint bookrunners on the deal.
"The Eurobond has been trading well in the secondary markets, tightening in line as real-money fund manager accounts looked to add on to their positions the day after pricing," says Maryam Khosrowshahi, head of CEEMEA sovereign DCM at Deutsche Bank, who worked with the Ivorian government on the deal.
She adds: "The order book was also strong, made up mainly of high-quality fund and asset managers predominantly from the US." The Ivorian government is yet to disclose the exact details of the order book.
The latest Eurobond from Côte d’Ivoire comes just eight months after the sovereign’s last. In July 2014, it issued a Eurobond for $750 million with a yield of 5.625%. The 2024 Eurobond is currently trading at 6.25%.
"Between now and last July, market conditions have changed but, despite this, there was a window of opportunity for Côte d’Ivoire to be the first African sovereign to issue this year while the pipeline was quiet," says Khosrowshahi.
The Eurobond issue comes at a challenging time for frontier markets, with deteriorating commodity prices, a stronger dollar and expectations of a US rate increase that have threatened investor flows into sub-Saharan Africa.
But despite the broader macro challenges, Côte d’Ivoire continues to pull in investors. Since civil war in 2010 and a default on the country's first Eurobond in 2011, there has been a strong turnaround in the economy. Repayments on the defaulted Eurobond resumed in 2012 amid strong economic growth: 8.7% in 2013 and 9.1% in 2014. Growth of 8.5% is expected in 2015, according to the World Bank.
Samir Gadio, head of Africa strategy at Standard Chartered, says: "This issue was not about limited idiosyncratic risks but technical factors and relative valuations more than anything. The market is already positive on Côte d’Ivoire due to its strong economic fundamentals and especially since the country resumed coupon payments in 2012 on its first Eurobond."
He adds: "Timing also helped the recent issue because the Eurobond pipeline out of the region has been light. But what this does show is that with the right pricing there is still strong demand for African sovereign paper."
Following the Eurobond, Côte d’Ivoire is now sub-Saharan Africa’s second-largest issuer, with total stock amounting to $4.25 billion, around a third of what has been issued by the region’s foremost issuer, South Africa.
The debt to GDP level in Côte d’Ivoire is around 35%. "The latest transaction may take the percentage up slightly, but this is still sustainable, especially with the strong growth levels we are seeing out of the country," says Samara.
Moreover, the structure of the bond – amortizing over three years – reduces redemption pressure, boosting debt-servicing capacity, says Khosrowshahi. "This is an attractive structure for the government and investors alike.
"As the first issue of the year, this is a great indication of investor sentiment towards African sovereign paper. There is investor demand. However, we do see that accounts are becoming more attuned to specific African sovereigns as opposed to an African story more generally."
Côte d'Ivoire's economy is well diversified. It is the leading producer of cocoa, accounting for 40% of global production, the second-largest global producer and leading global exporter of cashew nuts, the leading African producer of rubber, bananas and tuna, and the second-largest African producer of palm oil.
"Proceeds of the Eurobond will go towards fulfilling goals in the Country’s National Development Plan (NDP) which focuses on infrastructure, improving education and healthcare and reducing poverty,” says Khosrowshahi “These are a few reasons why the government returned to the Eurobond market eight months after the last – to fulfil budget and NDP requirements.”
Like many of its peers, Côte d’Ivoire issued an NDP in 2012 as an outline for economic and social development. According to the plan, the country aims to become an emerging market by 2020. So far, various infrastructure projects have been put in place, including the development of highways, Abidjan’s third bridge and the country’s first toll road.
"The country has huge capex needs,” says Samara. “The proceeds from the Eurobond will help take the country’s development to the next level."
Cameroon, Angola, Tanzania and Uganda are other potential candidates for Eurobond issues this year, say analysts.