Africa’s eurobond wall revisited

A wall of African sovereign eurobond repayments looms in 2024 and 2025, raising valid concern about refinancing risk. However, the risks are very concentrated. So there remains a need to focus the discussion at the country level and debate whether the sovereigns with bonds maturing are likely to have market access or not.

Following defaults by Zambia (in 2020) and Ghana (just now) the wall is slightly shorter as it now excludes their bonds. I assume they will eventually exchange their old defaulted paper for new bonds (and a sensible guess is that the new maturities will come later than 2028). The wall is also a bit shorter following active debt management via tenders and bond buybacks. ?

The wall remains large relative to this and last year, at around $10 billion in 2024 and 2025. The wall eases off a bit in 2026 but refinancing risks remain elevated for many years. While $10 billion isn’t much in global market terms, whether it can be refinanced depends on the state of the markets, and most importantly which countries need to refinance.

We can’t accurately predict market conditions in 2024 or 2025, but we know they are currently tough. The headache is that global interest rates are higher, versus 2017 to 2019, plus there’s a higher risk premium for emerging markets without investment grade credit ratings. This has made it prohibitively expensive for single-B sovereigns to issue eurobonds since early 2022, hence the concern about refinancing. NB there are very few African eurobonds bonds maturing in 2023. ??

African eurobond maturities (USD billion equivalent)

2024 eurobond refinancing wall = $10.3 billion. Notes on the lumpy maturities.

• Double-B rated: South Africa ($1.5 billion maturing) and Morocco (EUR 1.0 billion) should have no problem issuing, even in tough markets, although they might have to pay a little more than usual for market access. Both borrow mostly domestically and in their own currency.
• Egypt ($3.3 billion): The eurobond heavyweight wants annual market access. The amount needed seems large but Egypt issued an average of $7.4 billion each year from 2017 to 2021, although it took a pause in the tough markets of 2022. The public debt stock is mostly domestic but the risks are clear (debt interest payments are half of revenue). The government has a recovery plan with the IMF’s support in place, and still holds a b-rating. Nonetheless market access in February 2023 was very expensive. Going forward much rests on how much of the government’s reform plan is implemented and how generous Egypt’s Gulf and multilateral partners remain.
• Tunisia (EUR 850 million in February 2024) follows EUR 500 million maturing in October 2023 (then more each year until 2027). This is where the pressure lies, especially as Tunisia is currently c-rated. To avoid a debt slip and regain market access a lot of luck and reform is needed. The long-awaited IMF program would need to be approved, and encourage financing from bilateral and multilateral partners.
• Kenya ($2 billion) was a little behind peers when it debuted in the eurobond market in June 2014, but it came in big raising $2.75 billion. The $750 million 5-year tranche matured in 2019, but the big $2 billion 10-year chunk remains outstanding. Rather than opt for a structure that amortised over 3-years, Kenya and its advisors opted to have it all mature in one day. The government then dithered and didn’t tender any of the bonds in better markets, so the large looming repayment haunts Kenya in full. If Kenya can come to market and refinance the bond, then there is breathing space after and the debt looks sustainable. But markets are currently a tough place for a single-B and the clock is ticking to June 2024.
• Ethiopia ($1 billion): Another debut bond that was issued in 2014. Again it was a mistake to opt for the one payment bullet structure. Despite civil war and entering the G20 common framework Ethiopia has paid the coupons and remained current. At current yields market access looks a real struggle, so a plan-B may well be needed. Otherwise a reprofiling of the bond due in December 2024 might end up being the best remedy.

2025 eurobond refinancing wall = $10.2 billion. Notes on the lumpy maturities.

• Tunisia ($1 billion), Egypt ($3 billion) as above.
• Namibia ($750 million): their debut eurobond matured in November 2021 and they paid without issuing a new bond (via a sinking fund, FX reserves and their pension funds). This one is a bit larger (particularly versus GDP and FX reserves), but the country clings on to a double-B credit rating, despite recent slippage. There remains a chance that recent oil finds provide the economy a well-timed boost.
• Nigeria ($500 million): eurobond is small relative to its vast economy. But debt pressures are intense as measured by the debt interest bill relative to government revenue. A lot depends on whether the new government is successful in implementing reforms over this political term to secure the country's b-rating and market access.?
• Gabon ($700 million) and Angola ($864 million): both have a good record with the markets but it could be a problem if oil prices really plummet. Each have a track-record in liquidity management and there is potential for either to tender their maturities early. Angola have already reduced this maturity from $1.5bn via a tender.
• South Africa ($2 billion): as above.

I’ve written a few times about the wall of African eurobond. For Bond Vigilantes in 2020 (HERE), that was picked up the Financial Times (HERE), and in my book (HERE). But I have just updated the data.?

African eurobond yields?