According to recent media reports, Nigeria and Benin are set to follow in the footsteps of Ghana ($3.0bn) and Gabon ($1.0bn) to raise dollar-denominated debts at the international debt capital market in 2020. This was evidenced by the strong demand for Ghana’s recent Eurobond issue with subscription rate at 5x the offer (issued in three tranches; $1.25bn of 6-year at 6.4%, $1.0bn of 14-year at 7.9% and $0.75bn of 41-year at 8.8%) at an average coupon rate of 7.7%.
With the increasing level of monetary policy easing in the advanced markets, more Eurobond issuance in by African economies creates an outlet for international investors’ rising appetite for high-yielding emerging and frontier market debt issues, especially in a riskier market such as in Sub-Saharan Africa (SSA).
However, concerns remain around the debt sustainability of Africa’s rising indebtedness to foreign investors. Accordingly, the International Monetary Fund (IMF) has warned African governments that the rapid buildup of commercial debt makes them vulnerable to the whims of international investors. In our view, we note that the increased magnitude of market-based lending has a higher risk content, as captured by greater vulnerability to commodity prices, global interest rates, and currency movements. To allay these fears, SSA economies must implement bold reforms, diversify their economies and build resilience to these risks over the medium to long term.
United Capital Research