Thirst for African Eurobonds belies higher credit risk

Subject

African Eurobond push

Significance

African Eurobond issuance appears to be heading for another record year with total issuance already over 70% of last year's sales. Governments have taken advantage of benign market conditions amid a relative lull in the US Federal Reserve’s tightening cycle to raise external finance at comparatively cheap rates. Likewise, investors have shrugged off rising debt levels and economic fragilities in some issuing countries to benefit from the higher yields on offer. However, the market is still dictated by investor sentiment, which can quickly turn, to the detriment of late issuers.

Impacts

• The new US Fed chairman’s more hawkish stance could dim investor appetite for African bonds even if issuer demand remains buoyant.
• New debt instruments such as green bonds or sukuk will become more important but will require greater levels of investor scrutiny.
• The efficiency of Eurobond-financed investments in ‘good credits’ could come under scrutiny if debt burdens continue to rise.