08 May

High African Yields Raise Debt-Service Cost Concern, AfDB Says

Some African countries are overpaying for dollar bonds, raising concern about debt-service costs at a time when currencies are weakening against the greenback, according to the African Development Bank.

High interest rates make the continent’s bonds attractive to investors despite questions about the true extent of the debt loads of countries such as Zambia and the Republic of Congo.

“Raising a 30-year bond at a yield of 950 basis points — that’s very high,” AfDB President Akinwumi Adesina said in an interview in Johannesburg on Monday. Angola last week raised $1.25 billion selling a Eurobond due in 2048 at 9.375 percent.

Dollar bonds sold by African governments now yield 6.91 percent on average, compared with 5.66 percent in early January, Standard Bank Group Ltd. Indexes show. That compares with 6 percent for emerging markets generally.

African and emerging-market Eurobonds have sold off heavily in the last three weeks as the dollar strengthens and U.S. rates rise.

African nations have sold $18.3 billion of euro and dollar-denominated debt so far in 2018, already beating full-year records. Nigeria, Kenya, Senegal, Egypt and Angola have all issued 30-year tranches. Ghana is planning to sell as much as $2.5 billion of Eurobonds in 2018 and South Africa $3 billion.

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

Some nations will be better off selling local-currency bonds rather than take up foreign-denominated obligations, he said. That’s to avoid a currency mismatch, where the assets a government invests in generate income in local currency while the debt has to be repaid in a foreign denomination.

“If you have weak exchange rate, it means that you’re going to use a lot of your money to service your debt,” he said.

Nigeria announced plans last year to sell $5.5 billion of dollar-denominated securities, most of which would be to refinance existing domestic debt and reduce servicing costs.

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10 Apr

Zambia’s Bonds Plummet on Concern It’s Pulling a Mozambique

Investors fretting that Zambia may have more debt than it’s let on have sent the nation’s Eurobonds tumbling.

Yields on the copper-producing country’s $1.25 billion amortizing bonds due in 2027 rose as much as 54 basis points, the most since February 2016, before paring the increase to 50 basis points on Monday. At 8.45 percent, the yield was the highest in more than a year.

Banks including Nomura Holdings Inc. say the government may have greater external liabilities than the official figure of $8.7 billion.

That’s bad news for holders of Zambia’s dollar securities, which were already the worst performers in Africa year-to-date through the end of last week, losing 2.4 percent, according to the Bloomberg Barclays Emerging Markets USD Sovereign Bond Index.

The risk is that Zambian bondholders could find themselves in a similar situation as investors in Mozambique, where hidden debts led to default and the government is seeking to restructure.

Zambia has been in talks for several months with the International Monetary Fund about a $1.3 billion bailout, but the two sides have failed to strike a deal, partly because of the Washington-based lender’s concerns about foreign borrowings.

This ratchets up risk, according to Robert Besseling, director at political risk advisory firm EXX Africa Ltd., who also believes Zambia’s foreign debt could be much higher than the official number.

“The risk of debt defaults, especially on short-term high-interest loans, is rising fast,” he said in an emailed note Monday. “In the absence of an IMF aid program to boost foreign currency reserves and improve balance of payments, Zambia is quickly headed for a broad economic and financial crisis.”

Not everyone is convinced the debt situation is as murky. There is “no hard evidence” that the risk of hidden loans in Zambia is greater than any other countries with similar credit ratings, according to Gregory Smith, a sovereign-debt strategist at Renaissance Capital who was previously a World Bank economist in Zambia.

To read the full article, click here.

03 Oct

Meet Mwiya Musokotwane, the CEO of Thebe Investment Management

Mwiya Musokotwane is the CEO of Zambia-based investment firm Thebe Investment Management. The company’s key initiative is Nkwashi, a planned 3,100-acre satellite town 36km east of the capital Lusaka.

What entrepreneurial achievement are you most proud of?

The one thing I am most proud of is building a great team that is able to manage any challenge that they face; always be entrepreneurial in their outlook; always relish new experiences and challenges; and that are very dynamic and relentless. What is probably true of most great and enduring companies is that they have a great team around them – people who are able to really forge ahead and build a great corporate culture, people who buy into the company’s values, people who buy into the company’s vision, and, where need be, as a team can reinterpret that vision as time progresses and bring new life to it in each generation or in each cycle of the business environment.

And for me that’s my greatest achievement and I feel, especially being a millennial, that the other millennials I have around me are really class A. In a context like Zambia, that is very hard, because any person who operates in Zambia will tell you that the biggest challenge they face, outside of access to capital, is finding the right people.

Describe your greatest weakness as an entrepreneur.

I’m an introverted person – very logical in basically everything I do, and at the same time very perceiving. And so these characteristics are both a strength and a weakness for me in that I find it very easy to rationalise ideas and quickly figure out whether something is going to work or something is going to fail. But at the same time my process is extremely iterative in that I think very externally. I will bump ideas around a lot of people before I settle on a particular path forward.

Read more: The journey so far: Mwiya Musokotwane, CEO, Thebe Investment Management