SS Africa to tap markets in 2021
With some frontier markets such as Zambia now trying to renegotiate their debt with creditors, investors will be very much focussed on debt dynamics.
Sub-Saharan African governments will return to international capital markets in 2021 with Ghana, Kenya and Nigeria to issue bonds as investors once again are expected to embrace more risk, the Institute of International Finance said.
Fitch Ratings earlier this month said the Namibian government is preparing to refinance part of its US$500-million Eurobond principal repayment coming due in November 2021, possibly through international market issuance, to avoid a sharp international reserve drawdown.
Emerging market bond issuance has sprung back to life after the fallout from the coronavirus pandemic roiled global markets in the spring and saw bond sales from many developing nations grind to a halt.
Yet frontier markets - smaller and often riskier emerging markets - had still some catching up to do, the IIF said in a note to clients.
High-yield frontier market sovereign issuers have increasingly been accessing international capital markets, accounting for nearly 30% of issuance in the second half of the year, the IIF said in the note.
"However, spreads for [high-yield] issuers – particularly from Africa - remain elevated," it said.
The premium investors demanded on the JPMorgan EMBI global index for African issuers fell back to below 600 basis points in late November as benchmark US Treasury yields plunged to well below pre-crisis levels, the IIF noted.
COUNTRIES
In November, Ivory Coast became the first Sub-Saharan African sovereign to issue a pandemic-era Eurobond.
Kenya and Nigeria had also seen their spreads narrow close to pre-pandemic levels, though others found the premium was still 10% above those levels.
The association expects that more high-yield frontier market issues will "look to access global capital markets to lock in lower borrowing costs, as their domestic markets might find it hard to absorb additional issuance".
But with some frontier markets such as Zambia now trying to renegotiate their debt with creditors, investors will be very much focussed on debt dynamics, the IIF said.
NEW RECORD
Frontier market debt surged to a new record of 121% of GDP in the second quarter as governments scrambled to borrow to aid their recovery from the coronavirus pandemic.
The figure, a GDP-weighted average, rose 6 percentage points in the first half of the year, fuelled by a sharp increase in government debt to US$1.4 trillion in the second quarter, the IIF said in October.
The IIF surveyed 29 countries, debt ratios in 26 of the countries rose over the past year, led by Bahrain, Oman, Peru and El Salvador, the IIF said in a report.
In contrast, the Republic of Congo, Dominican Republic and Kazakhstan had cut debt ratios, it said.
“As the impact of the Covid-19 pandemic continues to hit the global economy and portfolio flows to emerging markets, existing macroeconomic and social vulnerabilities have been exacerbated,” IIF associate economist Khadija Mahmood wrote in the report.
“Lower commodity prices and weak trade and tourism revenues have also hurt. These adverse conditions have pushed global debt ratios to new records.”
Near zero interest rates, quantitative easing and more than US$15 trillion in fiscal stimulus globally, including about US$17 billion in frontier markets is putting rising debt levels for the asset class under increased scrutiny, the IIF said. – Nampa/Reuters and own report
Fitch Ratings earlier this month said the Namibian government is preparing to refinance part of its US$500-million Eurobond principal repayment coming due in November 2021, possibly through international market issuance, to avoid a sharp international reserve drawdown.
Emerging market bond issuance has sprung back to life after the fallout from the coronavirus pandemic roiled global markets in the spring and saw bond sales from many developing nations grind to a halt.
Yet frontier markets - smaller and often riskier emerging markets - had still some catching up to do, the IIF said in a note to clients.
High-yield frontier market sovereign issuers have increasingly been accessing international capital markets, accounting for nearly 30% of issuance in the second half of the year, the IIF said in the note.
"However, spreads for [high-yield] issuers – particularly from Africa - remain elevated," it said.
The premium investors demanded on the JPMorgan EMBI global index for African issuers fell back to below 600 basis points in late November as benchmark US Treasury yields plunged to well below pre-crisis levels, the IIF noted.
COUNTRIES
In November, Ivory Coast became the first Sub-Saharan African sovereign to issue a pandemic-era Eurobond.
Kenya and Nigeria had also seen their spreads narrow close to pre-pandemic levels, though others found the premium was still 10% above those levels.
The association expects that more high-yield frontier market issues will "look to access global capital markets to lock in lower borrowing costs, as their domestic markets might find it hard to absorb additional issuance".
But with some frontier markets such as Zambia now trying to renegotiate their debt with creditors, investors will be very much focussed on debt dynamics, the IIF said.
NEW RECORD
Frontier market debt surged to a new record of 121% of GDP in the second quarter as governments scrambled to borrow to aid their recovery from the coronavirus pandemic.
The figure, a GDP-weighted average, rose 6 percentage points in the first half of the year, fuelled by a sharp increase in government debt to US$1.4 trillion in the second quarter, the IIF said in October.
The IIF surveyed 29 countries, debt ratios in 26 of the countries rose over the past year, led by Bahrain, Oman, Peru and El Salvador, the IIF said in a report.
In contrast, the Republic of Congo, Dominican Republic and Kazakhstan had cut debt ratios, it said.
“As the impact of the Covid-19 pandemic continues to hit the global economy and portfolio flows to emerging markets, existing macroeconomic and social vulnerabilities have been exacerbated,” IIF associate economist Khadija Mahmood wrote in the report.
“Lower commodity prices and weak trade and tourism revenues have also hurt. These adverse conditions have pushed global debt ratios to new records.”
Near zero interest rates, quantitative easing and more than US$15 trillion in fiscal stimulus globally, including about US$17 billion in frontier markets is putting rising debt levels for the asset class under increased scrutiny, the IIF said. – Nampa/Reuters and own report
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