Angola: is it a loan, is it a bond?

November 20, 2012

Is it a bird or is it a plane?

Among the scores of issues coming to the flavour-of-the-year emerging sovereign debt market – recent borrowers include Costa Rica and Ukraine – Angola’s debut deal is one of the most confusing.

Russia’s second-largest bank VTB provided what was described as a $1 billion loan to the Angolan government earlier this year through a private placement of 7-year paper, with a yield of 7 percent.

The debt was issued by a special purpose vehicle backed by VTB, but the Angolan government was the ultimate guarantor, ratings agency Moody’s said at the time.

JP Morgan appears to be of the same mind – that this feels like a sovereign bond from Angola. The deal entered the bank’s flagship emerging sovereign bond indices, EMBI Global and EMBI Global Diversified, at the end of last month, according to a JP Morgan spokesperson.

Angola’s debt has a small weighting, of 0.198 percent in the EMBI Global and 0.348 percent in the EMBI Global Diversified, but many investors are only willing to buy debt which is included in these indices.

According to Stuart Culverhouse, chief economist at frontier markets broker Exotix:

The bond was  relatively active when it launched, there was some anticipation from the market that it would go into the index.

And Angola’s weighting in the indexes may soon get bigger – VTB said a few weeks ago it was ready to help Angola raise another $2 billion.

 

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