Bloomberg News

African Eurobond Yields Soar on Fed as Nigeria Meets Investors

June 20, 2013

Yields on African dollar bonds soared, some to the highest in a year, as the Federal Reserve said it may reduce monetary stimulus in 2013 and as Nigeria started marketing a second sale of international debt.

Fed Chairman Ben S. Bernanke said yesterday the central bank may start reducing bond purchases this year and end the program known as quantitative easing in 2014 should risks to the U.S. economy abate. Nigeria’s government started an investor roadshow in Europe, which will conclude in the U.S. next week, to market a prospective second Eurobond issue, according to a person with knowledge of the plans.

The increase “sounds like a reaction to the Fed meeting yesterday and concerns about the tapering of QE,” Shilan Shah, Africa economist at London-based Capital Economics Ltd., said by phone today. “There have been instances of countries delaying issuing Eurobonds simply because of market volatility.”

Yields on Ghana’s $750 million of Eurobonds advanced nine basis points, or 0.09 percentage point, to 6.12 percent, the highest since June 28, 2012, at 11:17 a.m. in London, where the notes are listed, according to data compiled by Bloomberg. Borrowing costs on Nigeria’s dollar debt due 2021 increased nine basis points to 5.5 percent, the highest since August 15.

The Fed’s bond-buying program pushed cheap money in U.S. markets, some of which found its way to other countries, including emerging markets. Investors have been pulling money from assets seen as riskier since last month, when Bernanke hinted that the pace of debt purchases may be slowed.

Funding Cost

Ghana, the world’s second-biggest cocoa producer, will seek to raise $1 billion in dollar bonds next month to refinance debt and invest in capital and social projects, Finance Minister Seth Terkper said in May.

The rising borrowing costs “implies that the authorities will have to pay a higher yield on their forthcoming Eurobond deal than the external funding cost they could have secured a few months ago,” Samir Gadio, an emerging-markets strategist with Standard Bank Group Ltd.’s London-based unit, said in an e-mailed response to questions today.

Nigeria, with Africa’s second-largest economy, appointed Citigroup Inc. and Deutsche Bank AG to organize investor meetings this week ahead of its planned sale of Eurobonds, according to a person with knowledge of the offering.

Africa’s biggest oil producer plans to sell $1 billion of dollar bonds to finance power projects after meetings with international investors in June, Finance Minister Ngozi Okonjo-Iweala said in an interview in Cape Town last month. The bond sale is planned for this year, said the person who asked not to be identified because the meetings are private.

Oil Declines

“It would probably be a bit too simple to blame concerns over the Fed’s actions, obviously Nigeria’s heavily reliant on oil revenues for instance and prices have fallen back,” said Shah. Bonny Light crude, one of Nigerian’s main grades, retreated 5.7 percent this year and was 0.8 percent lower at $106.30 a barrel today. Oil theft “has been getting quite a lot more attention recently and making a few more headlines,” Shah said.

Slow progress on government reforms before 2015 elections in Nigeria is keeping the country from getting a better credit rating, Richard Fox, the London-based head of Middle East and Africa sovereigns at Fitch Ratings, said on a conference call yesterday.

Fitch’s comments come a month after Moody’s Investors Service said Nigeria’s slow implementation of structural economic reforms is limiting its chances of a credit-rating upgrade, along with corruption, weak institutions and vulnerability to oil-price drops. Fitch rates Nigeria at BB-, three levels below investment grade.

Yields on Rwanda’s $400 million of international notes due May 2023, sold last month as the most recent African issue of Eurobonds, rose 35 basis points to a record high 8.26 percent. Borrowing costs on Zambia’s $750 million of dollar debt due September 2022 climbed 25 basis points to 6.7 percent.

To contact the reporter on this story: Chris Kay in Abuja at ckay5@bloomberg.net

To contact the editor responsible for this story: Vernon Wessels at vwessels@bloomberg.net


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