African eurobonds update Q3 2023

Here’s a?quick update on African sovereign eurobonds in the third quarter of 2023. Its 10 days late due to lots of travel.

There were $142 billion (face value) of African sovereign eurobonds trading in the third quarter of 2023 at a market value of around $125 billion.?

Global markets continued to rally in July before cooling off in August and then faced continued strain in early September. A brisk sell-off from mid-September saw global interest rates increase, causing the market price of African eurobonds to fall.

With the US Fed suggesting global interest rates would remain higher for longer emerging market funds experienced financial outflows. All this left the cost of eurobond issuance prohibitively expensive for most African sovereigns.?

African countries' eurobond yields (a proxy for the cost of borrowing)

No African countries issued standard sovereign eurobonds in the third quarter (so far only Egypt and Morocco have come to market in 2023). Although Gabon did issue a $500 million blue bond with credit enhancements (my thoughts here). This issuance was quickly followed by an election then a coup. By the end of the quarter the military had formed an interim government, appointed a prime minister, and suggested they’d service the sovereign debt.

Countries that got commercial financing over the quarter did so via syndicated loans. For example, Benin borrowed EUR 350 million (for 12 years at 6%) for key sustainable projects. And Ivory coast borrowed EUR 400 million with a guarantee from the African Development Bank. Meanwhile Chinese new lending remained very light to the continent (having fallen to just $1 billion in 2022).

Snippets

• Bloomberg did a piece on African growth and debt that quoted my book (link found here).
• The Nigeria government announced its new economic management team and carried on with its reforms. The government repaid a $500 million eurobond it issued in 2013, from foreign exchange reserves as refinancing via new eurobond issuance was deemed too expensive.
• Egypt announced some expected revenues from privatization, but could not convince the IMF to complete a review of its program and disburse financial support.
• Kenya met investors in London but talk followed on how the $2 billion bond might be repaid in June 2024. Kenya’s rating teetered in the low-single-Bs as the agencies questioned their ability to refinance the 24s. Moody’s put the B3 rating on a negative outlook and made some comments about distressed exchanges, making Kenya’s task even harder. My post from March on Africa’s wall of maturing eurobonds makes articulates my thoughts (link here).
• The coupon on Mozambique’s 2031 sole eurobond stepped-up to 9%. I wrote about that (link here).

Selected credit rating changes

• In July Mauritius got a BBB- rating from S&P to accompany its Baa3 from Moody’s to secure its investment grade status, just.
• Republic of Congo got one foot in single-B door, with an upgrade from CCC+ to B- from S&P.
• Ethiopia got downgraded by Moody’s deeper into the Cs, as they cited an “increasingly high likelihood of default”. The Caa3 suggests creditors loses of 20%-35%, as they thought the government should only seek liquidity relief on the $1 billion eurobond due in December 2024. Ethiopia's foreign exchange reserves are low at about $1.1 billion (mid-2023)
• Cameroon got downgraded by Moody’s and S&P for a default in 2022 that nobody noticed at the time. I wrote about it (link here) and got a hat tip from the Financial times (link here, but paywall).
• In early October (in Q4) Egypt got downgraded by Moody's to Caa1.

A proxy for general African eurobond borrowing costs (%)

African eurobond issuance (USD billion)

African eurobond stock