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

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