Ivory Coast and Kenya last week capitalized on demand for high-yield credit as the pace of public issuance by African governments began to accelerate after a relatively slow start to the year.
Prior to last week’s two deals, only Benin in January and the Republic of Congo on February 11 had issued on the open market. Cameroon also issues international bonds, but these are through private placements. The company used the note to raise an additional $100 million last week, bringing its outstanding balance to $850 million.
Bankers had been hoping for more public deals with prices already set, but the schedule could easily slip. Yet, despite widespread market anxiety caused by developments in AI, investors remain keen on riskier assets, and as both Ivory Coast and Kenya have shown, the door is open for African issuers.
On Wednesday, Cote d’Ivoire (Ba2/BB/BB) made its first issue of US$1.3 billion in bonds due in February 2041 with a weighted average maturity of 14 years.
One lead banker said that among sub-Saharan African sovereigns, it is “along with Benin and Nigeria, the most favorable.” That was also evident in trading, where orders peaked at over USD 5.85 billion after bookings opened in the 7.75% area.
This allowed Reed to reduce the price to a yield to maturity of 7.125%. As a result of the price squeeze, final demand was just over USD 3.3 billion.
Still, the banker said the new issuance was within the fair value range of 12.5 to 20 bps. “It was a pretty solid repricing” of Curve, he said.
BNP Paribas, Citigroup, Deutsche Bank, JP Morgan, SMBC, Société Générale and Standard Chartered were bookrunners.
The deal is Sovereign’s first since being upgraded one notch by Fitch in December, meaning the company now has a full double-B rating from all three major rating agencies.
“They want to reassess their curve and bring it closer to South Africa,” the banker said. According to LSEG, South Africa (Ba2/BB/BB–) is bidding for US$750 million, 6.25% March 2041 bonds at 6.72%.
“Investors were told in advance that they were going to be price sensitive,” said Tis Lowe, a portfolio manager at NinetyOne. “They only issued US$1.3 billion, so they wanted the pricing to be as tight as possible. However, as a BB credit, there is still a significant amount of risk premium compared to the underlying credit.”
Ivory Coast is in a relatively good position both politically and economically, with presidential elections in October and high gold prices offsetting weak cocoa prices.
Additionally, investors are confident in their credit. “They have a long track record of sound management. That’s worth more than any commodity price,” the banker said.
Trouble in Senegal
The main short-term risk relates to what is happening in Senegal, which is trying to prevent a default. The country has issued 1 billion euros of 4.75% 2028 bonds, which will mature next month.
Media reports last week, including Reuters, said the government had raised enough money to make the payments from tax revenues and local markets. But even if that happens, other debt payments are due, and payments will spike in June and July.
Senegal is in talks with the IMF over a new program after multilateral programs were frozen when the government unearthed billions of dollars in hidden debt owed by the previous government.
New programs are essential to unlock other funds, but a full-scale crisis could also have ripple effects on Ivory Coast, a member of the West African Economic and Monetary Union. “The two banks share pooled resources and the (Ivorian) bank will have exposure to the Senegalese government papers, so second-order effects could be felt,” the banker said.
turning point
Kenya (B/B–) is back in USD trading for the fourth time since early 2024. In February of the same year, it issued US$1.5 billion in bonds and launched a tender offer for US$2 billion that matured in June. At one point, this refinancing seemed like a dead end.
This deal was a turning point and Kenya has since become a safer issuer. The company is employing the same new issue and tender offer model for all subsequent transactions, including this latest one on Thursday, as it continues to lower its average cost of funds and defer large maturities.
The total amount of foreign currency bond refinancing over the remaining 10 years will reach more than US$1 billion, and will rapidly increase from 2030 onwards.
Indeed, the US dollar market has become an important funding source for Kenya, as domestic interest rates remain relatively expensive, although they have fallen significantly over the past year.
Kenya priced its USD 900 million February 2034 bond with a weighted average maturity of 7 years at 8.1% and its USD 1.35 billion February 2039 tranche (average maturity of 12 years) at 8.95%.
Both tranches offered double-digit premiums to Kenya’s curve, which were still considered harsh given the sovereign’s rating. The initial price prediction was area 8.375%, 9.25%.
The new agreement provides for the repurchase of up to US$150 million, including 7.25% accrued interest due in Kenya in 2028, and up to US$350 million, including 8% accrued interest due in 2032.
“We have a very solid external balance story to present to investors, with the current account deficit narrowing over the past five years and foreign exchange reserves increasing to a record $12.4 billion in December,” said Giulia Pellegrini, lead portfolio manager for emerging fixed income at Allianz Global Investors.
Pellegrini also highlighted Kenya’s solid economic growth and subdued inflation.
“The Achilles’ heel of the Kenyan situation remains the fiscal situation, with recent news reports of worsening finances in the current financial year,” he said. “While the government’s medium-term plan includes meaningful fiscal consolidation and relies on limited revenue measures and spending cuts, revenue performance in recent years has been below plan and leaves room for potential disappointment.”
Citigroup and Standard Bank were bookrunners.
Source: IFR
