Africa Sees Eurobond Revival as Kenya, Senegal Tap Market

(Bloomberg) -- African nations are diving into the Eurobond market again after a hiatus of about two years, seeking to put their houses in order amid signs of growing confidence in their economies.

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Kenya plans another early buyback of its Eurobonds, the World Bank said Wednesday, a day after Senegal became the fourth sub-Saharan African nation to tap the market this year.

“I think the market clearly is open and there is cash on the sidelines,” said Thys Louw, portfolio manager at asset manager Ninety One.

African economies were priced out of the Eurobond market as yields soared with rising US interest rates. Although rates remain high, the countries are seeking to ride a return in investor confidence.

More than half of Africa’s governments face external liquidity problems and unsustainable debt burdens, or are actively seeking to restructure or re-profile their balance sheets, the World Bank said in a report released Wednesday.

Kenya plans to settle a further $1 billion of its Eurobonds ahead of maturity, bringing the total buybacks this year to $2.5 billion. The east African nation raised $1.5 billion in Eurobonds in February, easing its liquidity constraints at the time.

Senegal on Tuesday raised $750 million of debt maturing in 2031 in two tranches at a coupon rate of 7.75%.

These offerings are being helped by backing from institutions like the World Bank and International Monetary Fund that have been key in transforming Kenya’s sovereign outlook and pushing reforms in Senegal, according to Charlie Robertson, head of macro strategy at FIM Partners.

“Both countries saw what difficult markets were like earlier this year, and want to avoid that experience in the coming years,” Robertson said via email, referring to the current environment with the US Fed yet to begin an easing cycle.

Jean-Claude Kassi Brou, Governor of the Central Bank of West African States, said the recent Eurobond issues from the region show investor confidence.

“We hope that this is a turning point that will let other countries raise funds on the international market,” Brou told reporters in Dakar on June 4.

That said, the issuers are likely to pay “close to or above double digits” given the prevailing high interest rates, said Ninety One’s Louw.

The highest interest rates in years pose a risk to emerging economies such as Kenya, limiting its access to external funding, the World Bank warned.

“Tight global financial conditions arising from lower-than-expected return of global inflation to target levels could aggravate Kenya’s vulnerabilities towards meeting external financing requirements,” the Washington-based lender said.

Kenya’s plan for the early buyback of its Eurobonds this year is part of an effort to smooth out the nation’s debt-repayment profile.

“Kenya has plenty time to buy back its USD bonds and exchange for any new longer-maturity instruments.” said Simon Quijano-Evans, chief economist at Gemcorp Capital Management. “Markets would very likely oblige. For EM sovereigns, it’s just a question of picking the right window of lower US Treasury yields as markets work out when the Fed is going to cut rates.”

The country has declined to say which maturity is up for repurchase.

“It’s premature to talk about it now,” said Haron Sirima, the head of debt management at the Kenya’s National Treasury. “That will depend on market conditions — it’s for liability management.”

In January, Ivory Coast ended sub-Saharan Africa’s almost two-year absence from the international capital markets when it sold $2.6 billion of Eurobonds. That was followed a month later by Benin, which raised $750 million, and Kenya.

--With assistance from Katarina Höije.

(Adds economist comment in 16th paragraph.)

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