Some African countries are overpaying for dollar bonds, raising worry about debt-service costs at any given time when currencies are weakening from the greenback, based on the African Development Bank.

High mortgage rates produce the continent’s bonds easily understood by investors despite questions the real extent with the debt tons of countries just like Zambia and also the Republic of Congo.

“Raising a 30-year bond for a yield of 950 basis points – that’s very good,” AfDB President Akinwumi Adesina said inside an interview in Johannesburg on Monday. Angola yesterday raised $1.25 billion selling a Eurobond due in 2048 at 9.37%.

Dollar bonds sold by African governments now yield 6.91% an average of, in comparison to 5.66% in early January, Traditional bank indexes show. That compares with 6% for emerging markets generally. African and emerging-market Eurobonds have sold off heavily during the last three weeks since the dollar strengthens and US rates rise.

African nations have sold $18.3 billion of euro and dollar-denominated debt to date in 2018, already beating 12 months records. Nigeria, Kenya, Senegal, Egypt and Angola have all issued Thirty year tranches. Ghana is preparing to sell just as much as $2.5 billion of Eurobonds in 2018 and Africa $3 billion.

The region’s average government debt ratio had increased about 20 percentage points in the past six years to 53% of GDP, in line with Fitch Ratings. Still, public debt in Africa is significantly from crisis level, Adesina said.

Local-Currency Debt

Some nations will be better off selling local-currency bonds rather then use up foreign-denominated obligations, he stated. That’s to protect yourself from a currency mismatch, the location where the assets a government invests in generate income in local currency as you move the debt has to be repaid from a foreign denomination.

“If you may have weak exchange rate, it implies that you’re going to work with a wide range of your money to service what you owe,” he explained.

Nigeria announced plans during the past year to offer $5.5 billion of dollar-denominated securities, most of which may be to refinance existing domestic debt lower servicing costs. The International Monetary Fund said this will likely boost the West African nation’s exchange-rate risks.The naira has lost much more than 40% of value up against the dollar since Nigeria abandoned a peg in 2016.

Adesina, an early Nigerian agriculture minister, said Nigeria’s low ratio of debt to GDP allows it some room to borrow.

“There’s nothing untoward” about Nigeria’s debt shift, he was quoted saying. “When you could negotiate external debt and you’ll borrow for a price that creates sense, you happen to be able to swap and say you find a better debt internationally so that you can finance any local debt that you’ve got been accumulating.”

?? 2018 Bloomberg


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