Debt market has re-opened for Sub-Saharan African issues amidst discovery of coronavirus vaccines discoveries.
As such, Fitch Ratings is expecting Namibia, Nigeria and South Africa (SA) to roll over maturing bonds in 2021 when they fall due.
The maturing bonds include USD500 million bonds for Namibia and Nigeria and a JPY30 billion bond for South Africa.
Cote d’Ivoire’s (B+/Positive) issuance of a 12-year EUR1 billion Eurobond on 25 November confirms that some sub-Saharan African (SSA) issuers are able to resume market issuance to meet part of their financing needs over the next year, says Fitch Ratings.
However, weaker credits may still face higher risk premia than before the coronavirus pandemic, which could discourage their return to markets.
Fitch says Cote d’Ivoire’s issuance was the first by an SSA sovereign since the escalation of the pandemic.
A number of North African and Middle Eastern sub-investment-grade sovereigns have issued debt since the crisis, including Bahrain (B+/Stable), Egypt (B+/Stable) and Oman (BB-/Negative), but SSA issuers have lagged returning to markets after the shock.
Pre-pandemic, Fitch said it had expected Angola (CCC), Benin (B/Stable), Cote d’Ivoire, Gabon (CCC), Ghana (B/Stable), Kenya (B+/Negative), Nigeria (B/Stable) and South Africa (BB-/Negative) to tap international markets in 2020.
However, only Gabon and Ghana managed to issue debt before the pandemic shock, in February and March, respectively, after which SSA sovereigns cancelled foreign issuance plans as markets effectively closed.
“Investor aversion towards the region was aggravated by a sharp worsening in its growth and public and external finances.
“This stemmed from the economic disruption caused by the health crisis and its broader international repercussions, in the context of pre-existing vulnerabilities”, the Ratings firm added.
The situation saw the JP Morgan Emerging Market Bond Index (EMBI) Global spread for African issuers spike to more than 1,000bp on 23 March.
This was from an average of 469bp in February, making new issuance prohibitively expensive.
International official creditor support has helped to bridge the financing gap for many countries.
“We estimate the G20’s Debt Service Suspension Initiative (DSSI) will conserve around USD9.3 billion for Fitch-rated SSA sovereigns in 2020, and its extension to end-June 2021 will provide further support”, it noted.
The IMF has also disbursed around USD13.5 billion to Fitch-rated SSA sovereigns in 2020.
Some countries, such as Namibia (BB/Negative), Nigeria and South Africa, have solicited IMF funding for the first time in decades – or in some cases, ever.
“We expect other sovereigns to follow Cote d’Ivoire in issuing Eurobonds in 2021, as market conditions have eased sharply”, Fitch says.
The EMBI Global spread for African issuers fell back to below 600 bp in late November and US treasury yields, the benchmark for the EMBI spread, have also declined from pre-crisis levels, but large divergences remain between countries.
Spreads for Cote d’Ivoire, Kenya and Nigeria narrowed significantly in October and are now close to pre-pandemic levels.
Meanwhile spreads for the other eight Fitch-rated SSA sovereigns for which there is data have narrowed from their March peaks, but are still more than 10% above average levels seen in January-February 2020.
The global hunt for yield as a result of massive monetary easing in development markets has helped bring down the cost of debt.
Cote d’Ivoire’s bond was priced at a record-low yield of 5% and was still five times oversubscribed.
“We expect Namibia, Nigeria and South Africa to roll over maturing bonds in 2021 when they fall due”, Fitch says.
These include USD500 million bonds for Namibia and Nigeria and a JPY30 billion bond for South Africa.
The firm also expect these three sovereigns to conduct further issuance to meet funding needs and believe Cote d’Ivoire, Ghana and Kenya will return to the markets in 2021.
Fitch then added that there is a possibility that other issuers, such as Benin, could join them.
Bond issuance in SSA may, nonetheless, remain lower than in previous years, in part reflecting enhanced official creditor financing.
The IMF and other official creditors will continue to provide strong support.
It is also possible that the DSSI, which can include caps on non-concessional funding, could be extended.