Africa on course for growing debt issuance as global search for yield continues
25 November 2014

Governments and companies in Africa are on course to continue the trend of growing debt issuance this year as investors across the world continue to purchase high yield assets amidst continued low interest rates and mounting concern that a global economic slowdown could cause volatility in equity markets, according to Standard Bank Group's economic researchers.

Standard Bank Group says companies on the continent have issued US$4.35-billion of corporate debt this year, while governments have issued US$10.6-billion. That compares to US$6.95-billion in corporate debt sales in Africa last year and US$9.7 billion in sovereign debt issuance on the continent during 2013.

"African economic growth is still outpacing much of the rest of the world and with that expansion comes a growing need to fund infrastructure investment," said Ms Megan McDonald, Global Head of Debt Primary Markets at Standard Bank Group.

"Despite some of the global challenges, Africa is still issuing and investors are still buying up that issuance. Investors in international markets continue to look for yield in spite of the fact that quantitative easing has come to an end."

African governments and more recently, the continent's financial institutions and corporate entities, have raised capital in offshore debt markets in recent years as interest rates in developed nations fell to near-zero levels in the wake of the 2008 financial crisis, pushing down international borrowing costs. This has prompted an increase in sovereign bond issuance from Nigeria, to Kenya, Zambia, Ivory Coast, Senegal, Ghana and South Africa, supporting the need for new roads, railways, ports and energy generating facilities across the continent.

Kenya issued dollar-denominated bonds for the first time this year with the successful placement of a record US$2 billion of five- and 10-year notes in June. Continued investor appetite for the hard-currency debt of African nations also enabled Ivory Coast to place US$750-million in dollar-denominated debt in July, a mere three years after the country default on earlier obligations.

South Africa has followed the growing issuance trend with the continent's second biggest economy issuing US$1.676-billion of dollar and euro-denominated debt in July. This was followed in September by an additional US$500-million of Sukuk bonds, in a landmark transaction involving the issuance of debt that is compliant with Islamic law.

Appetite for Africa bonds has remained high, despite ratings downgrades across the continent.

"There have been some challenges but as a whole, Africa is still either issuing or looking to issue," says Ms McDonald.

Rwanda has indicated it may sell as much as US$1-billion in dollar denominated bonds next year following a successful US$400-million sale in 2013. Elsewhere in East Africa, Tanzania is looking to secure a credit rating in order to tap international debt markets while Ethiopia is said to be in the process of issuing its debut dollar bond by early 2015.

"Going forward we expect increasing eurobond issuance from financial institutions and corporates from Africa leading to a greater diversification of total issuance which is currently dominated by Sovereigns," says Ms McDonald.

"We're also seeing strong demand for subordinated debt, particularly in Nigeria. This marks a maturing and increasing sophistication of Africa's debt capital markets."

Ecobank Nigeria issued a US$250-million eurobond in August while in July, First Bank of Nigeria issued a US$450-million note for operational capital and Helios Towers Nigeria issued US$250-million in notes due 2019.

"The Sub-Saharan African eurobond market has grown at a compound annual growth rate of 34% over the last five years compared to wider emerging market sector growth of 21%," said Ms McDonald.

"That trend looks set to continue well into next year in what remains a very exciting time for the African debt capital markets."

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