Rwanda plays into African debt demand

April 24, 2013

Rwanda is planning to launch its debut $400 million 10-year Eurobond today, less than two decades (corrects time period) after it was torn apart by genocide. It is the latest chapter in the story of African bond issuance which has stepped up in recent years, exploiting investors’ hunger for yield.

The bond may yield well above 7 percent — attractive at a time when Italian 10-year yields, one of the riskier punts within the euro zone,  have fallen below 4 percent.  Frontier markets broker Exotix has the Rwandan deal as one of its five fixed income trades to watch. Their analysts say:

Rwanda’s economic fundamentals are not that bad, but potential bond investors will be concerned about aid dependence.

Growth is strong and public debt is moderate, Exotix says, but Rwanda’s current account excluding aid totals 20 percent of GDP, compared with 10 percent if one were to include donors’ assistance. Rwanda’s debt is likely to yield much more than Senegal or Zambia, at 7-8 percent, Exotix adds, as the country’s rating of single-B is one notch lower.

Along with sovereigns such as Angola, Kenya and Nigeria expected to tap the international debt market this year, Exotix is on the look-out for Nigerian banks, after Fidelity Bank said earlier this month it was planning a bond:

Nigeria’s banks will increasingly tap the Eurobond market in the future, in order to diversify their funding base and increase their liability maturity, allowing them to increase the proportion of longer-term loans in their portfolio. We expect that a combination of historically low yields and high investor appetite for emerging market debt will generate ample demand for new issuance from this largely repaired

Fixed income analysts at Barclays also like the look of African dollar debt. In  a recent note, they  recommend buying issues from Angola and Tanzania (both are private placements but investors say they are traded), as well as Ivory Coast, which is once more paying its debt coupons.

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