Ivory Coast to Belize — tale of two frontiers

February 20, 2012

One has already defaulted on its debt and the other is at risk of doing so, but Ivory Coast bonds are wildly outperforming those of Belize in JPMorgan’s new NEXGEM frontier bond index.

The index contains the debt of 18 frontier markets, and Ivory Coast was the best performing in January, after the borrower said at a roadshow in London last month that it hoped to resume making coupon payments on its debt this year.

Ivory Coast stopped paying coupons on its debt in Jan 2011, when it was in the throes of unrest following a disputed presidential election. But the only way is up, now, it seems, for the $2.3 billion bond, which has made returns of 21 percent in January, according to JPMorgan.

It’s the best performing debt in the NEXGEM index, which overall slightly outperformed JPMorgan’s closely-watched and broader EMBI-Global Diversified index in January.

Belize, meanwhile, looks in danger of spiralling into default after Prime Minister Dean Barrow raised questions a few weeks ago about the government’s willingness to service a “super bond” totalling nearly $550 million. The next flashpoint for the bond is today, when a $23 million coupon is due (though today’s U.S. holiday may complicate things), and Belize is the worst performer in the index, with losses of 26 percent.

However, JPMorgan, which remains marketweight (neutral) on the index overall, is still upbeat about Belize, which faces elections in March. Their analysts say:

We have a bias to add Belize following the elections as we do not believe that a default is likely… Aside from the near-term noise, the economic news is relatively good, with growth holding steady in the 2.5-3.0% range, the fiscal deficit narrowing, and the public debt burden declining over the past couple of years.

JPMorgan also says the NEXGEM index could soon have a new entrant — Zambia, which invited tenders last week for bookrunners and advisers for a debut $500-700 million bond. The analysts add:

With a 10-year tenor, the bond could be eligible for inclusion.

See JPMorgan graph below for NEXGEM bond performance.









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