Ghana to issue bond with credit guarantee from WB

Sub-Saharan Africa is poised to continue last year’s credit binge in spite of repeated warnings about the possible dire consequences of rising levels of debt.

Ivory Coast began a round of talks this week with potential creditors in the hope of securing further credit just seven months after borrowing $750m.

The west African country is not alone. Angola, which has approached banks including Goldman Sachs for loans, is in talks to issue its first sale of international currency debt. Investors say Tanzania, Uganda, Rwanda and Nigeria are all set to follow, while Ghana is in talks to issue a bond with some form of credit guarantee from the World Bank.

The International Monetary Fund has repeatedly cautioned countries in Africa about the dangers of growing sovereign bond issuance, particularly in international currencies. Christine Lagarde, IMF managing director, told finance ministers last year they risked the future of the “Africa rising” story by overloading with debt.

According to British think tank the Overseas Development Institute countries in sub-Saharan Africa are threatening losses of close to $11bn if their currencies continue to depreciate against the dollar and they are unable to repay money borrowed over the last two years.

“Repayments are dependent on continued strong economic growth in sub-Saharan Africa but growth is now at risk of stalling as export markets slow and commodity prices — especially oil — plummet,” wrote Judith Tyson.

“Today’s economic environment in sub-Saharan Africa is similar to the boom that preceded the bust in the debt crises in Africa and Asia in the 90s.”

But for issuers the ability to borrow money from investors at very low rates is hard to ignore.

Global hunger for yield following ultra-loose monetary policies in the US, Japan and Europe has pushed investors to look outside their usual hunting grounds and seek out more exotic assets. This in turn has led to debt issuances in sub-Saharan Africa being widely oversubscribed. Ivory Coast’s sale last year attracted orders of nearly $5bn.

The next sales will be a test of investor appetite for African debt in a new world of lower commodity prices and new expectations of a US interest rate rise this summer. The flood of so-called “hot money” looking for a home might not be so easily drawn to Africa this year, says Kevin Daly, senior portfolio manager at Aberdeen Asset Management.

If this is the case it raises the question of how countries can refinance the debts they have taken out. “Debt sustainability is a concern,” said Mr Daly. “Issuing in another currency is attractive to investors but more risky for a country and countries like Nigeria may be looking to issue more in its own currency this year.”

Sustainability concerns are also encouraging investors to look more closely at what their money is being spent on. “Mozambique borrowed US$850mn for their national fishing industry but instead spent the money on military boats and equipment,” said Ms Tyson at the ODI. “The irresponsible use of funds by some governments is contributing to the problem.”