Angola’s Steps Toward Re-entering the International Bond Market

Angola is preparing to re-enter the international bond market after investor meetings. Despite a recent 9.5% bond issue due in November, the timing for new issuance remains undecided due to elevated yield levels. Kenya and Gabon are also addressing liquidity and debt management challenges through various financial strategies in an expensive borrowing environment.

Angola is taking proactive measures to re-enter the international bond market following meetings with investors in the United States, the Middle East, and the United Kingdom. Bankers report that the representatives recently traveled to Boston and New York, with subsequent discussions occurring in the Gulf region and London. As of now, Angola has a bond issue of 9.5% maturing this November, with outstanding amounts totaling approximately $864.4 million according to LSEG data.

Despite engaging with investors, Angola has not yet established a timetable for a new bond issuance. One banker noted that the levels remain high for Angola, as yields continue to hover in the double digits, rendering them unattractive to investors. Last April marked Angola’s last public Eurobond issuance, while a recent offering secured backing for a total return swap agreement with JP Morgan, allowing Angola to manage its liquidity more effectively despite high costs.

The recent arrangement involved issuing $1.2 billion of bonds with a 10.95% interest rate, which was later increased to $1.93 billion. These bonds are rated B3 by Moody’s and B- by both S&P and Fitch. They also serve as collateral for a $1 billion loan from JP Morgan, essentially excluding the liability from Angola’s external debt calculations. While the specific interest details of the loan remain undisclosed, bankers emphasized that collateralized debt typically presents a lower cost than unsecured debt.

Investment challenges persist for several African nations. Emerging market liquidity is becoming increasingly expensive, and the trajectory of the US economy poses concerns for capital flows. Additionally, recent US aid freezes and budget cuts by governments such as the UK may significantly impact recipient countries like Kenya. Kenya’s Treasury Secretary has warned of a substantial funding shortfall due to these aid cuts.

To mitigate its financial obligations, Kenya opted for a proactive strategy, raising $1.5 billion through a 9.5% note issuance to fund a buyback of existing debt. However, this strategy required paying a yield of 9.95% to access public markets and underscores the current challenges of managing sovereign debt.

Parallelly, Gabon recently turned to private markets to raise $570 million through a high-yield private placement to facilitate a tender offer for maturing obligations. Despite this action, the yield of 12.70% drew criticisms for being among the highest paid by an emerging market sovereign in years. Gabon’s actions reflect its urgent need to manage debt in light of upcoming elections and lack of support from the IMF.

Moreover, Gabon previously issued additional bonds as part of a liability management exercise involving several other debt instruments, yet encountered complications with its buyback strategy. Criticism of these costly maneuvers raises broader questions about the sustainability and strategy behind such financial dealings.

These developments suggest that while African sovereigns are attempting to navigate complex financial challenges, the road to liquidity and effective debt management remains fraught with difficulties and significant costs, prompting concerns about the future of their fiscal stability.

In conclusion, Angola is actively seeking to reclaim its presence in the international bond market amidst high yield levels that currently deter investment. Kenya and Gabon are also navigating their own financial hurdles through bond issuances and buybacks to manage debt. The overall landscape for African sovereigns is characterized by increasing borrowing costs, heightened liquidity challenges, and uncertain external economic influences, indicating a pressing need for strategic financial planning and resilience in fiscal management.

Original Source: www.zawya.com