Archive for the 'Credit ratings' Category

Africa’s eurobond outlook 2019

A good overview of Africa’s  $92bn eurobond market, with a summary of 2018 and 5 key themes for 2019, written by Gregory Smith, Director and Fixed Income Strategist for Emerging Markets at Renaissance Capital, is available on LinkedIn.

Overall there are 20 African eurobond issuers with the largest issuers South Africa, Egypt and Nigeria, also Africa’s 3 largest economies.

About 2018, he wrote: “Despite the tough markets 2018 was a record year for African sovereign issuance and saw a growing preference for euro-denominated eurobonds, and longer maturity eurobonds. The $25.8 billion issued by African countries in 2018 makes up 28% of the current stock of African eurobonds. Angola, Egypt, Ghana, Ivory Coast, Kenya, Nigeria, Senegal and South Africa each issued 30-year paper.”

Source: Renaissance Capital

As highlighted previously, there were 2 upgrades in credit ratings for Eurobond issuers during 2018. S&P upgraded Ghana and Republic of Congo. However, Moody’s downgraded 5 countries: Angola, Kenya, Gabon, Tunisia and S&P and Fitch joined in downgrading Zambia.

Key trends Smith focuses on for 2019:

  1. International market turbulence is the top trend. It will be good news for many African countries if the US dollar gets weaker internationally and the US Federal Reserve holds back from raising US interest rates as much as previously anticipated. But there are global downside risks to issuers, including lower global growth impacted by strained US-China relations.
  2. Will key issuers make enough progress with economic reforms? Reforms such as lower deficits and adequate foreign exchange reserves are needed to support economic growth and make the debt sustainable. If markets get tough in 2019 (see previous), reforming economies do best. Check Smith’s list of 10 African Eurobond issuers busy with reform programmes under guidance of the International Monetary Fund (IMF) and the 2 issuers, Zambia and Republic of Congo, still talking but not ready to start IMF programmes.
  3. Policymakers’ skills at managing their debt, particularly as a period of heavy bond repayments begins in 2022 and remains high until 2025. Strong debt management skills include “economic policy coordination, an understanding of debt risks, a debt strategy, good data management, regular public reporting, good investor communication, a skilled team that can negotiate good terms with potential global lenders” as well as redeeming some debt ahead of maturity by longer term issues
  4. Elections in eurobond issuers this year (in approximate date order): Nigeria, Senegal, South Africa, Mozambique, Tunisia and Namibia.
  5. This year is unlikely to see as many eurobonds issued as last year. “Those most likely to issue in 2019 include Egypt, Angola, Ghana, and Kenya”.

For deeper analysis and more details and charts, see the original posting on LinkedIn here.

 NB Gregory Smith points out his views are for information, they do not constitute investment advice.

Rising debt tide threatens credit ratings across Africa

Credit quality across Africa has been declining, according to analysts speaking at a credit ratings event in London. Global rating agency Moody’s says the last 12 months saw 7 downgrades out of its 21 African sovereign ratings. Seven credit ratings are on negative outlook and only Morocco and Egypt are on positive outlook.
Several countries including South Africa stayed with high Baa3 ratings. South Africa has a Moody’s sovereign release date (updated on rating) on 12 October. Other rating agencies S&P and Fitch downgraded its local currency bonds to “junk” status, meaning below investment-grade, according to this story from Bloomberg. Namibia has Ba1 status, with a negative watch following an August review.
Zambia’s long-term issuer rating has been downgraded to Caa1 stable in July, below Democratic Republic of Congo (DRC) which was rated B3 negative in June. Mozambique is rated Caa3 negative. Other countries which have seen rating downgrades are Angola and Kenya, while Tanzania and Cameroon are on negative outlook.
The bad news comes despite good growth in some parts of Africa. Key concerns are the ways governments manage fiscal policy, with elevated budget deficits and rising debt levels, after many governments issued large amounts of foreign currency bonds. Some countries which have borrowed heavily to invest into developing infrastructure face governance questions on whether prices are inflated – Zambia is particularly affected. Debt problems are worse because of local currency declines.
Investors into Africa at a Moody’s event in London on 26 September are also worried about global financial conditions and shocks, but are more confident on domestic politics.
Lucie Villa, Moody’s Vice President-Senior Credit Officer, commented that South Africa’s economy is likely to accelerate in 2019 but to remain timid, while recognizing the challenges faced by National Treasury meeting different fiscal and social objectives. Most foreign investors into South Africa use the ZAR currency.
Daniela Re Fraschini, Assistant Vice President in the Sovereign Risk Group, says East Africa remains the fastest-growing region, with Kenya, Uganda, Rwanda and Tanzania all forecast to grow well. Kenya and Tanzania are more resilient because their economies are more diversified. Rwanda has been consistently more competitive.
Rising oil prices could bring good news for Nigeria, Gabon, Congo and Angola.
Moody’s has increased its credit ratings from 31 to 51 African banks and Akin Makejodunmi, Vice President and Senior Credit Officer at Moody’s, says Islamic finance could double its share of the sector, from 5% to 10%, given that 40% of the population are Muslims.

For more on Moody’s credit ratings on African governments and many corporate issuers, see www.moodys.com