DWIN­DLING BOR­ROW­ING OP­TIONS AS RAT­INGS FALL

Gov­ern­ments are ditch­ing the Eurobond for syn­di­cated loans

The East African - - NEWS - By AL­LAN OLINGO The Eastafrican Pic: File

Africa is find­ing it dif­fi­cult to raise money, with gov­ern­ments ditch­ing the Eurobond mar­ket as coun­try rat­ings re­main shaky.

The African re­gion is in­creas­ingly find­ing it dif­fi­cult to raise money, with gov­ern­ments ditch­ing the Eurobond mar­ket in favour of syn­di­cated loans as coun­try rat­ings re­main shaky.

At the start of this year, Kenya, Tan­za­nia, Ethiopia, Ghana and Rwanda had in­di­cated they would be is­su­ing Eurobonds but so far, none of them has. They con­tinue to bat­tle neg­a­tive rat­ings, eco­nomic growth slow­down and neg­a­tive in­vestor sen­ti­ment. This year it is only Ivory Coast that en­tered the in­ter­na­tional mar­ket in May, at­tract­ing al­most $10 bil­lion in bids for its Eurobond auc­tion.

The yields for the African bonds have been largely flat in the past month, with Kenya’s Eurobond yield at a two-year low. It is down by 33 ba­sis points in the past week to 5.93 per cent on the sec­ondary mar­ket, from 6.54 per cent in Oc­to­ber, sig­nalling that for­eign in­vestors may be jit­tery about the coun­try’s longterm prospects.

On Tues­day, Trea­sury Cabi­net Sec­re­tary Henry Rotich said they would still is­sue an­other Eurobond whose pro­ceeds will partly be used to re­pay a $750 mil­lion syn­di­cated loan is­sued two years ago, and ma­tur­ing in 2019.

“We are con­sid­er­ing tap­ping the in­ter­na­tional debt mar­kets to ei­ther fi­nance in­fra­struc­ture de­vel­op­ment or for liq­uid­ity man­age­ment” said Mr Rotich, ad­ding that the Trea­sury still does not have a time­line for the new bond is­sue.

It has also emerged that most in­vestors in the syn­di­cated loan have agreed to ex­tend its ma­tu­rity by six months from Oc­to­ber this year to April 2018, mean­ing the new Eurobond could be floated be­fore the end of the first quar­ter next year.

Early this year, Dar es Salaam had in­di­cated that it would be test­ing the in­ter­na­tional mar­kets with a de­but Eurobond un­der Pres­i­dent John Magu­fuli.

Three months later, the coun­try would re­veal it was in dis­cus­sions with Credit Suisse for a $300 mil­lion loan meant for its projects. The fund­ing was re­ceived mid this year, putting brakes on the Eurobond mar­ket.

“We had ini­ti­ated talks with Lon­don-based Credit Suisse for a $300 mil­lion loan. We are also in sep­a­rate talks with other lenders, in­clud­ing the Kuwait Fund for Arab Eco­nomic De­vel­op­ment, the Abu Dhabi state fund Mubadala De­vel­op­ment and the Opec Fund for In­ter­na­tional De­vel­op­ment for other con­ces­sional loans to fund these projects,” Tan­za­nia’s Min­is­ter of Fi­nance and Plan­ning Dr Philip Mpango said, ad­ding that they were look­ing at rais­ing $936 mil­lion in the cur­rent fi­nan­cial year to fund in­fra­struc­ture projects.

The Eastafrican has learnt that Tan­za­nia failed to ac­quire a rat­ing agency that would see it get a fair deal, forc­ing the coun­try back to the syn­di­cated loans mar­ket with a bias to­wards con­ces­sional loans.

“The process for the Eurobond was never fi­nalised after we en­coun­tered a num­ber of chal­lenges es­pe­cially in ac­quir­ing a rat­ing agency,” Bank of Tan­za­nia econ­o­mist Genes Ki­maro said.

Deepak Dave, an an­a­lyst at River­side Cap­i­tal, a Nairo­bibased risk man­age­ment firm, said that for re­gional economies, the era of cheap Eurobonds could just be over mostly be­cause of the cur­rent mar­ket dy­nam­ics.

“The mar­ket has wit­nessed an ar­ti­fi­cial de­pres­sion of the risk­free rate. Debt ceil­ing pres­sures have made some coun­tries’ de­fault chance al­most a re­al­ity. Pol­i­tics and poor fis­cal man­age­ment have also seen in­vestors place a higher risk pre­mium on in­ter­est rates, mak­ing these bonds a gam­ble for African coun­tries,” said Mr Dave.

Kenya loans

Kenya has in the past year re­ceived more than $1.2 bil­lion in syn­di­cated loans ar­ranged by Stan­dard Charted Bank, Citi Bank and Stan­dard Bank as it strug­gles to pur­suade in­vestors to take up its Eurobond which has failed to take off, with the just con­cluded elec­tion not of­fer­ing a con­ducive en­vi­ron­ment.

“Kenya has faced many pre­elec­tion un­cer­tain­ties that would re­flect badly on such a bond. How­ever there is still ap­petite for these bonds and the coun­try could just pack­age it well in its prospec­tus,” head of Quan­tum Global Re­search Mthuli Ncube said.

Fran­cis Omondi, an eco­nomics don at Keny­atta Univer­sity said that cur­rently, the charts are show­ing that African coun­tries’ debt and debt sus­tain­abil­ity has be­come an is­sue, es­pe­cially given the re­cent eco­nomic growth slow­down, fall­ing com­mod­ity process, cur­rency de­val­u­a­tions and gen­eral un­cer­tainty.

“In the past, the mar­ket was very re­cep­tive to coun­tries that ven­tured into the in­ter­na­tional sovereign mar­kets be­cause they rode on the Africa Ris­ing nar­ra­tive. How­ever, this rise stalled and fell with a drop in com­mod­ity prices, par­tic­u­larly for the re­source-de­pen­dent na­tions, putting pres­sure on lo­cal cur­ren­cies and stag­nated growth. The rat­ings agen­cies neg­a­tive out­look also did the African coun­tries in, forc­ing them back to syn­di­cated loans that are slightly more ex­pen­sive,”said Mr Omondi.

Ngong Road in Nairobi un­der con­struc­tion. Coun­tries are seek­ing to raise cash mainly for in­fra­struc­ture projects.

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