In an unfathomable turn of events, a major global trade route underwent an occurrence similar to the everyday experience of a Lagos resident, except, this occurrence lasted way longer and is far more consequential.
The Suez Canal, which serves as a trade conduit in Egypt allowing water vessels to conveniently sail between Europe and the Middle East, India and Asia, was obstructed by what seemed like the aftermath of a bad driver getting stuck after attempting a U-turn on a very narrow road.
If you have seen the pictures of this blockage, then you probably get the gist. Last Tuesday, the Suez Canal was completely blocked by the Ever Given mega vessel, hence, shuttering a major global trade route that usually accommodates around 12% of global trade.
Before we delve into the far-reaching implications of this mishap, we need to ruminate over what caused this in the first place. Just by looking at the picture, it is apparent that someone or a group of persons made a mistake. Hence, it was quite surprising to hear speculations that the obstruction might have been mainly caused by strong winds and weather factors. However, recent reports from the Suez Canal Authorities unsurprisingly stated that technical or human errors might have been the major cause of the blockage.
While we wait on further information from ongoing investigations, the impact of the movement disruption has been devastating. With about 369 ships stuck as of Sunday, the blockage has severely disrupted global trade, holding up an estimated $9.6bn of trade daily (out of curiosity, I wonder what the economic implications of the strenuous Lagos traffic are).
To make this more relatable for our Nigerian readers that only understand the magnitude of cost when expressed in naira terms, the blockage has cost roughly N4.5 Trillion each day (30 percent of Nigeria’s total budget for the year), assuming we convert the dollar cost using a generous parallel market rate of 1$/N470.
However, oil-producing nations like Nigeria found some silver lining amid this chaos, as the supply disruption triggered by the blockage sparked some positive movement in the international oil market. With an estimated one million barrels of oil supply disrupted daily and expectations of the blockage lasting for weeks, Brent crude recorded its largest daily gain in nearly one year, as it ticked up by 5.95% last Wednesday to close at $64.41 per barrel.
That was a very long week for global trade, but luckily, the nightmare seems to be over. It was reported on Monday that the ship blocking the Suez Canal was fully dislodged, hence, allowing for the passage of the stranded ships. Nevertheless, one must wonder how and why this happened. While analysts from our end remain satisfied with the official reports and expectant of further fallouts from the investigation, initiators and patronizers of conspiracy theories must have a full plate on hand, as this is one complicated scoop.
Eurobond issuance season…
The Sub-Saharan Eurobond market in terms of new issuance was largely subdued last year as a lot of Sub-Saharan African countries were faced with the tough decision of issuing Eurobonds in an unfavorable market condition to ease FX liquidity pressures caused by the pandemic or Focus on getting Debt service relief from the IMF and World Bank.
The chart above paints a clear picture of how SSA handled its FX needs for 2020. The region raised a total of USD 5.2 bn through various Eurobond issues, an 8.8% reduction compared to USD 5.7 bn raised in 2019, with Ivory Coast being the only Sub-Saharan African country to issue a Eurobond after the pandemic hit.
The reduction in regional Eurobond issue was attributed to the global pandemic, which prompted institutional investors to dump risky assets in favour of safe havens and subsequently causes yields to rise, making it expensive for regional economies to access the market, coupled with the depreciation of local currencies in the region which made debt servicing costs more expensive.
The year 2020 also saw Zambia become the first nation in the region to default on its debt service obligations of a USD 42.5 mn Eurobond coupon in November 2020.
Eurobond Issuance in 2020
| Country | Amount Issued | Issue Date | Issue Tenor | Coupon | Maturity Date |
| Ghana | 1,250.00 | 11-Feb-20 | 7 | 6.40% | 11-Feb-27 |
| Ghana | 1,000.00 | 11-Feb-20 | 15 | 7.90% | 11-Feb-35 |
| Ghana | 750.00 | 11-Feb-20 | 41 | 8.80% | 11-Feb-61 |
| Gabon | 1,000.00 | 6-Feb-20 | 11 | 6.60% | 6-Feb-31 |
| Ivory Coast | 1,191.00 | 30-Nov-20 | 12 | 4.90% | 30-Jan-30 |
The Ivory Coast’s 12-year issue was priced at a historical record-low yield for regional issuers of 4.9% and yet, recorded the highest oversubscription rate of 5.0x in 2020.
This was attributed to investors’ hunt for high yields following a massive monetary easing in developed markets, which unlocked liquidity in financial markets and consequently resulted in declining yields.
The low supply of Sub-Saharan Eurobonds in the market also contributed to the oversubscription, with Ivory Coast being the first Sub-Saharan African Eurobond issuer in 9 months.
Performance so far…
Benin Republic takes the lead…
The Republic of Benin completed a €1 billion bond issue on the international debt market in January 2021, making it the first SSA Eurobond issued in 2021. €700 million at an interest rate of 4.8% with a maturity of 11 years while the remaining €300 million was issued with an interest rate of 6.8% and a maturity of 31 years.
The two tranches were subscribed at €1.9 billion and €1.2 billion, respectively, signaling strong investors’ appetite for SSA paper. We have also witnessed some corporate Eurobond issuance with the most recent being Seplat. Seplat issued $650m 5-Year Senior Unsecured Callable Eurobond (first 2 Years cannot be called) at 7.75% last week, of which part of the proceeds will be used to call back their existing Eurobond on April 21st, 2021 at a 102.31 cash price.
The Banking sector wasn’t left out as Ecobank Nigeria also lunched the first SSA bank Eurobond issuance of the year, Yield was set at 7.125% for a USD 300mn trade size.
Ghana Issuance: Oversubscribed but weak…
Ghana held its Eurobond issuance yesterday with a four-year zero-coupon bond, seven-year, twelve-year, and twenty-year debt being offered. Ghana received a total subscription of $6bn as against the $5bn initial target but ended up selling $3.025bn across all maturities.
Ghana sold $525 million worth of 4-year zero-coupon instruments at 78 cents, $500 million worth of 20-year securities at 9.25%, $1 billion of 12-year notes at 8.75%, and $1billion of 7-year bonds at 7.75%. The current weakness caused by the rising US treasury coupled with US inflationary concerns seems to have weakened bid levels as the stop rate closed below initial price guidance despite the reduced sales.
The Ghana auction was meant to set the tone of the SSA Eurobond issuance in 2021. Strong demand for Ghana’s sovereign would clearly highlight the region’s ability to have continuous access to international capital markets and avoid uncertainty. But the result seems to tell us two things; one, there is still much dollar liquidity out there, and two, the liquidity seeks attractive yields.
This begets the question, “given the current rise in the yields at the local market, do you think this is the right time for a Eurobond issuance bearing in mind the increase in debt service?”
