As fears of hid­den debt mount, Africa is­suers face more scru­tiny

The Star Malaysia - StarBiz - - Foreign News -

LA­GOS: African eurobond is­suers face more scru­tiny in the wake of ques­tions about the true ex­tent of the debt loads of Zam­bia and the Repub­lic of Congo.

Few in­vestors ex­pect the sit­u­a­tion in ei­ther na­tion to be as bad as that of Mozam­bique, where the dis­cov­ery of hid­den loans two years ago trig­gered a fi­nan­cial cri­sis and sovereign de­fault. Still, sev­eral are query­ing whether their ex­ter­nal li­a­bil­i­ties are greater than pub­lic fig­ures sug­gest.

Zam­bia de­nied last Fri­day it is hid­ing debt and showed bud­get doc­u­ments de­tail­ing bor­row­ing. The Repub­lic of Congo also de­nied con­ceal­ing debt.

The de­vel­op­ment may com­pli­cate fund­ing plans for African gov­ern­ments and compa- nies. Ris­ing geopo­lit­i­cal ten­sions in the Mid­dle East and Rus­sia and a tight­en­ing of mon­e­tary pol­icy in the US are mak­ing con­di­tions tougher for emerg­ing-mar­ket bor­row­ers and prompt­ing in­vestors to be more scrupu­lous.

“In a ris­ing tide, all boats are lifted,” said Ronak Gopal­das, a Lon­don-based an­a­lyst at Sig­nal Risk, which ad­vises com­pa­nies in Africa.

“But when the cy­cle turns, that’s when coun­tries with â bad pol­i­tics and bad eco­nom­ics’ are ex­posed. In­vestors will scratch be­low the sur­face more.”

Zam­bia’s dol­lar-bond yields rose to the high­est in more than a year last week as lenders in­clud­ing Bank of Amer­ica Corp. and No­mura In­ter­na­tional Plc raised con­cerns about the gov­ern­ment’s of­fi­cial num­bers for for­eign debt.

The se­cu­ri­ties have lost 2.4% this year, mak­ing them the worst per­form­ers in Africa in the Bloomberg Bar­clays Emerg­ing Mar­kets USD Sovereign Bond In­dex.

Bank of Amer­ica said in an April 11 note that the con­ti­nent’s sec­ond-big­gest cop­per pro­ducer may have con­tracted US$10bil of new loans since 2015 that could in­crease its debt bur­den by the equiv­a­lent of 30% of gross do­mes­tic prod­uct within five years.

While a de­fault in the near-term is un­likely, “debt wor­ries are jus­ti­fied,’’ said an­a­lysts Rukayat Yusuf and An­drew Mac­Far­lane, who are based in Lon­don.

The gov­ern­ment last Fri­day re­it­er­ated pre- vi­ous state­ments that its ex­ter­nal debts were US$8.7bil at the end of De­cem­ber, or around a third of eco­nomic out­put.

The In­ter­na­tional Mon­e­tary Fund, which is in talks with Zam­bia and Repub­lic of Congo about pro­vid­ing them loans, said this month that the lat­ter needs to clar­ify ex­actly what it owes bi­lat­eral and com­mer­cial lenders.

The cen­tral African oil pro­ducer’s 2029 Eurobond yields have climbed around 180 ba­sis points this year to more than 10%.

Repub­lic of Congo has “noth­ing to hide” and “all fi­nan­cial trans­ac­tions or debts with its bi­lat­eral and mul­ti­lat­eral part­ners have al­ready been given to the IMF,” Thierry Moun­galla, Min­is­ter of Com­mu­ni­ca­tions, said.— Bloomberg

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