[ 2015-02-19 ]

Ghana to issue bond with credit guarantee from WB
Sub-Saharan Africa is poised to continue last
year’s credit binge in spite of repeated
warnings about the possible dire consequences of
rising levels of debt.

Ivory Coast began a round of talks this week with
potential creditors in the hope of securing
further credit just seven months after borrowing
$750m.

The west African country is not alone. Angola,
which has approached banks including Goldman Sachs
for loans, is in talks to issue its first sale of
international currency debt. Investors say
Tanzania, Uganda, Rwanda and Nigeria are all set
to follow, while Ghana is in talks to issue a bond
with some form of credit guarantee from the World
Bank.

The International Monetary Fund has repeatedly
cautioned countries in Africa about the dangers of
growing sovereign bond issuance, particularly in
international currencies. Christine Lagarde, IMF
managing director, told finance ministers last
year they risked the future of the “Africa
rising” story by overloading with debt.

According to British think tank the Overseas
Development Institute countries in sub-Saharan
Africa are threatening losses of close to $11bn if
their currencies continue to depreciate against
the dollar and they are unable to repay money
borrowed over the last two years.

“Repayments are dependent on continued strong
economic growth in sub-Saharan Africa but growth
is now at risk of stalling as export markets slow
and commodity prices — especially oil —
plummet,” wrote Judith Tyson.

“Today’s economic environment in sub-Saharan
Africa is similar to the boom that preceded the
bust in the debt crises in Africa and Asia in the
90s.”

But for issuers the ability to borrow money from
investors at very low rates is hard to ignore.

Global hunger for yield following ultra-loose
monetary policies in the US, Japan and Europe has
pushed investors to look outside their usual
hunting grounds and seek out more exotic assets.
This in turn has led to debt issuances in
sub-Saharan Africa being widely oversubscribed.
Ivory Coast’s sale last year attracted orders of
nearly $5bn.

The next sales will be a test of investor appetite
for African debt in a new world of lower commodity
prices and new expectations of a US interest rate
rise this summer. The flood of so-called “hot
money” looking for a home might not be so easily
drawn to Africa this year, says Kevin Daly, senior
portfolio manager at Aberdeen Asset Management.

If this is the case it raises the question of how
countries can refinance the debts they have taken
out. “Debt sustainability is a concern,” said
Mr Daly. “Issuing in another currency is
attractive to investors but more risky for a
country and countries like Nigeria may be looking
to issue more in its own currency this year.”

Sustainability concerns are also encouraging
investors to look more closely at what their money
is being spent on. “Mozambique borrowed US$850mn
for their national fishing industry but instead
spent the money on military boats and
equipment,” said Ms Tyson at the ODI. “The
irresponsible use of funds by some governments is
contributing to the problem.”

Source - FT

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