Hunting for Eurobonds

Attracted by the prevailing low interest rates, cash-strapped African countries looking to borrow money on international private markets are increasingly turning to Eurobonds as the instrument of choice.

In 2006, Seychelles became the first country in sub-Saharan Africa, other than South Africa, to issue bonds. A year later Ghana followed, raising US$750m in Eurobonds. Since then they have been joined by Gabon, Senegal, Côte d’Ivoire, the Democratic Republic of Congo, Nigeria, Namibia and Zambia.

In September 2012, Zambia made a splash on the international private market, launching a 10-year bond at $750m. The issue was oversubscribed by $11m and became a model for other African nations. Rwanda followed suit in 2013 with a $400m Eurobond issued on the Irish Stock Exchange. Zambia is considering issuing a $1bn Eurobond this year to finance its budget deficit. It also plans to spend over $600m on developing power, road and rail infrastructure. Kenya is finalising plans for its debut entry into the Eurobond market, seeking up to $1.5bn to finance infrastructure projects.

Nigeria first entered the markets in 2011 with a 10-year Eurobond. “We look to come [to the market] regularly, every two years,” Finance Minister Ngozi Okonjo-Iweala told the Financial Times. In 2012, African countries raised about $8.1bn from issuing bonds, says Moody’s, a global credit rating agency. In total, more than 20% of the 48 countries in sub-Saharan Africa have sold Eurobonds, according to the International Monetary Fund (IMF).

For certain governments in sub-Saharan Africa, Eurobonds are a means of diversifying sources of investment finance and moving away from traditional foreign aid. Not only do these bonds allow such governments to raise money for development projects when domestic resources are wanting, they also help reduce budgetary deficits in an environment in which donors are not willing to increase their overseas development assistance.

Corporate entities in sub-Saharan Africa, like Guaranty Trust Bank in Nigeria and Vodafone Ghana, have also successfully issued Eurobonds. Global investors have been eager to purchase these bonds for higher yields amid low returns in mature markets. It is a sign of the investors’ endorsement of the region’s buoyant economic prospects, observes Mthuli Ncube, chief economist and vice-president of the African Development Bank (AfDB). The developed world has been rocked by a series of economic and financial crises while Africa has displayed steady growth over recent years, averaging about 5% per annum. Analysts believe the incentive for investors is solely the prospect of higher gains.

Eurobonds have also given African countries an opportunity to integrate into global financial markets. Up until recently, according to the AfDB, access was limited for African countries apart from Morocco, South Africa and Tunisia, which entered the markets in the 1990s. In addition, bond issuances come with fewer strings attached than money from multilateral institutions. Governments also have more control over where they channel the money.