9 de agosto de 2016 / 14:52 / en un año

Amidst emerging bond rally, African governments must pay up to sell debt

LONDON, Aug 9 (Reuters) - Emerging dollar-bond markets have been on a roll in recent months thanks to investors hunting for returns, but Ghana’s failure to place its issue shows investors are willing to drive a hard bargain when it comes to weak junk-rated credits.

Hard-currency debt issued by riskier and less developed countries has been one of the best performing asset classes so far this year, yielding more than 13 percent in dollar-terms since the start of the year. reut.rs/2938RL0

Emerging debt funds have just posted their largest five-week inflow on record, amounting to $16.6 billion, Bank of America Merrill Lynch estimated last week.

In theory, that ensures a sweet spot for emerging market issuers looking to raise money, as global investors saddled with more than $10 trillion of negative-yielding developed world bonds vie for exposure to higher yielding assets.

But not everyone has managed to cash in. Having expected to raise up to $1 billion after a well-attended roadshow last week, junk-rated Ghana decided to pull its issue after investors demanded a double-digit yield.

“I see it as a good thing. This shows buyers have really done their research and are not being undiscriminating,” said JC Sambor, deputy-head of emerging market fixed income at BNP Paribas Investment Partners.

“Also on the issuer side, they can decide if they want to delay. The fact that they have this security shows the market can be a bit frothy but is not on the bubble side.”

Ghana failed to place its bond even though money managers are desperate to invest the cash that is pouring into their emerging market funds.

But in the past year, African sovereign dollar bonds, despite some recent gains, have not participated as much as others in the sector’s rally.

JPMorgan’s most used hard-currency emerging debt benchmark, the EMBI Global Diversified, shows investors can expect an average premium of 345 basis points over safe-haven U.S. Treasuries overall - 32 bps less than a year back.

The Asian-sub set of emerging countries - typically seen as the safest in the developing world - have seen spreads contract 27 bps in this period.

But investors exposed to the African subset would have seen the spread widen by 61 bps.

Africa’s highly oil and commodity dependent countries have not just suffered a dire economic outlook following the end of the resource price boom.

They also have to deal with the fallout from bond issues that have gone sour - Mozambique for instance restructured its tuna bond in what was widely deemed an investor friendly deal.

However, shortly after it emerged the country owed $1 billion more to creditors than earlier disclosed, leading to a ruckus with the International Monetary Fund and pushing its external debt levels to 80 percent of gross domestic product.

More recently holders of the Republic of Congo’s dollar bond were spooked by a missed payment which the country attributed to an administrative error. The payment has since been made.

“There are no good stories (in Africa),” said Michael Cirami, Co-Director of Global Income at Eaton Vance.

“There are opportunities to make money, there are opportunities in Nigeria, or in East Africa, but to elevate it to a good story means there has to be more than an investment opportunity, and I don’t see that just now.”

Africa’s largest economy, Nigeria, may try to sell Eurobonds in coming months, and Ghana too is expected to have another go in the next few weeks. But those issues will have to come at a price, investors reckon.


Overall emerging market sovereign issuance has kept a breezy pace this year, thanks to a few mega-deals from the likes of Argentina and investment-grade rated Qatar. But net new supply, after accounting for maturities and coupon payments, will be just over $50 billion, JPMorgan estimates

As a result, a country like Brazil - which is also rated junk, albeit higher than Ghana - was able to sell 30-year bonds at an annual 5.875 percent yield, just four months after it paid 6.125 percent for 10-year cash.

Sri Lanka, rated even lower on the junk scale than Brazil, was swamped with $6.6 billion in orders for its $1.5 billion eurobond this week. It paid just 5.75 percent and 6.825 percent for five- and 10-year tranches respectively.

The difference could be that Brazil is a well known name and is seen broadly as an improving story. Ghana’s effort on the other hand coincided with its parliament approving budget spending that could scupper its IMF loan deal.

“If you are a risky issuer, either because you are a highly correlated to commodities or geopolitically you are sitting in the wrong place, you have to offer a premium. If you are an investment grade name you can demand a premium,” one fund manager said. (Additional reporting by Sujata Rao; Editing by Raissa Kasolowsky)

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