The Sub-Sahara’s Bond Breakthrough Bid
As the African Development Bank carried out bond data and technical initiatives based on the ADB’s post-Asia crisis model, Nigeria and Zambia were the latest to mark watershed moves with respective entry into the JP Morgan benchmark local index and a global issue debut. Nigerian Treasuries will comprise only 1 percent of the roster but the addition may bring a $1 billion inflow into the $35 billion market, and the 10-year yield dropped 4 percent to 12 percent and the naira firmed to 155 to the dollar as inclusion goes into effect in October. The Goodluck administration may also launch its first sovereign offering since winning election, and corporates such as oil group Afren which have appeared may enhance their profile. Net public debt is only 15 percent of GDP but bank and fiscal consolidation setbacks could worsen the load, according to S&P, which assigns a B+/B grade with positive outlook. Ratings agencies regularly question double-digit credit growth and capital adequacy overestimation at the surviving post-crisis banks, and reiterate governance and security constraints and per-capita income and infrastructure weakness offsetting oil-driven current account and foreign reserve boosts. Inflation persists over 10 percent with the central bank holding rates. Rumors continue to circulate that the deadly Boko Haram will turn from religious to commercial targets and focus attacks on Lagos and Abuja. The Finance Ministry nonetheless has pressed on with a $1 billion sovereign wealth fund startup to succeed the excess crude account depleted by misappropriation and poor management, and in a separate bond pilot has laid the groundwork for an Islamic sukuk. Zambia’s 10-year $750 million placement got $12 billion in orders at a yield below Spain’s at 5.6 percent despite FX restrictions which mandate local transactions in kwacha. The government maintains threats to outlaw the opposition party and has doubled copper royalties as it prepares a general overhaul of the mining regime after several violent labor confrontations with Chinese executives.
Kenya, which has been the continent’s frontier stock exchange leader, has grabbed fixed-income attention after obtaining an offshore syndicated loan despite the 45 percent debt-GDP ratio and a record 350 basis point rate slash to 13 percent on lower food price inflation. The shilling stayed firm at 85 to the dollar despite additional jitters as Muslims rioted after the killing of a renowned cleric and tribal infighting over land rights resumed in the stretch toward next year’s elections. The assassination in Mombasa reinforced complaints about minority discrimination and the lack of development and anti-terror aid in the city as civil war rivalry spills over from Somalia. On the infrastructure front the state power company received a World Bank $200 million facility for upgrades and eventual connection to the neighboring Southern African grid experiencing its own network knocks.
