Nam might consider another Eurobond

Jo-Maré Duddy – Namibia is likely to roll over its US$500-million Eurobond when it matures next year and to conduct further issuance to meet its funding needs, Fitch Ratings has said.

The international credit rating agency on Sunday issued a report saying Ivory Coast’s issuance of a 12-year US$1-billion Eurobond on 25 November confirms that some Sub-Saharan African (SSA) issuers are able to resume market issuance to meet part of their financing needs over the next year.

“However, weaker credits may still face higher risk premia than before the coronavirus pandemic, which could discourage their return to markets,” Fitch said.

In his mid-term budget review tabled in October, finance minister Iipumbu Shiimi forecast total government debt at N$134.7 billion in 2021/22. No mention was made of rolling over maturing debt or issuing a new Eurobond.

According to Cirrus Securities, the following debt will mature in the 2021/22 fiscal year: N$934 million of GC21s in October 2021, followed by the first Eurobond of US$500 million in November and N$2.8 billion in GC22s in January 2022.

“Much of Namibia’s foreign debt matures over the next five years, notably the two Eurobonds and remaining JSE debt,” Cirrus said in their mid-year economic review.

‘PRESSURE ON RESERVES’

“Should the foreign debt be redeemed, it will put pressure on the reserve position as there will be a resultant large outflow of foreign currency. However, a struggling South African economy and weak rand would be beneficial in rolling the Eurobonds if need be. This is especially so in a world of negative-yielding bonds and money printing seeing investors cast the net ever wider in the search for yield,” Cirrus said.

Commenting on Shiimi’s mid-year budget review, Cirrus said “given the excess liquidity in global markets, low interest rates and a weak rand, we would have viewed a net issuance in the Eurobonds (foreign debt) in a positive light”.

“In our view a potential Eurobond issuance would have been a good tool to fund the budget deficit while supporting foreign reserves at the same time. The future funding of the large budgeted deficits throughout the MTEF [medium-term expenditure framework] period remain a material concern, as it is unlikely that the domestic market will be able to responsibly and sustainably fund the quantum of deficit proposed by the ministry [of finance],” Cirrus said.

AFRICA

Fitch expect s Nigeria and South Africa to join Namibia in rolling over maturing bonds in 2021 and to conduct further issuance. The agency further believes that Ivory Coast, Ghana and Kenya will return to the markets next year and said there is a possibility that other issuers, such as Benin, could join them.

Pre-pandemic Fitch had expected Angola, Benin, Ivory Coast, Gabon, Ghana, Kenya, Nigeria and South Africa to tap international markets in 2020. However, only Gabon and Ghana managed to issue debt before the pandemic shock, in February and March, respectively, after which SSA sovereigns cancelled foreign issuance plans as markets effectively closed, the agency said.

“Investor aversion towards the region was aggravated by a sharp worsening in its growth and public and external finances. This stemmed from the economic disruption caused by the health crisis and its broader international repercussions, in the context of pre-existing vulnerabilities,” Fitch said.

International official creditor support has helped to bridge the financing gap for many countries, the agency pointed out.

IMF, G20

“We estimate the G20’s Debt Service Suspension Initiative (DSSI) will conserve around US$9.3 billion for Fitch-rated SSA sovereigns in 2020, and its extension to end-June 2021 will provide further support.

“The IMF [International Monetary Fund] has also disbursed around US$13.5 billion to Fitch-rated SSA sovereigns in 2020. Some countries, such as Namibia (BB/Negative), Nigeria and South Africa, have solicited IMF funding for the first time in decades – or in some cases, ever,” Fitch said.

The agency expects bond issuance in SSA may remain lower than in previous years, in part reflecting enhanced official creditor financing.

“The IMF and other official creditors will continue to provide strong support. It is also possible that the DSSI, which can include caps on non-concessional funding, could be extended,” Fitch said.