Changes Drive Investors Toward African Eurobonds

South Africa’s and Angola’s recentissuances were both oversubscribed.

Global economic disruptions arising out of Russia’s invasion of Ukraine, and sharp rate cuts from developed economies, have ratcheted up African sovereigns’ appetite for eurobonds. In spite of a commodity price boom, they are being used to cover for currency programs, infrastructure development and funding of economic programs.

South Africa issued $3 billion in Eurobonds in April, following Angola’s $1.75 billion and Nigeria’s $1.25 billion issuances. South Africa’s and Angola’s issuances were both oversubscribed.

Angola’s 10-year eurobond, also placed in April, marked the African oil leader’s first foray into the market since 2018 and was more than two times oversubscribed. It came “[as] its economy recovers from a recession on the back of higher crude prices,” notes Albert Zeufack, World Bank chief economist for Africa.

South Africa, the latest African sovereign to enter the eurobond market, was 2.4 times oversubscribed—more than $7.1 billion—with investor demand across the United Kingdom, North America, Europe, Asia, Africa and others, its national treasury says. The investor profile included fund managers, insurance and pension funds, hedge funds, banks and other financial institutions.

“Lower bond yields in developed markets following the sharp policy rate cuts and quantitative easing by the US Federal Reserve, European Central Bank and Bank of England pushed investors into frontier markets in developing countries” in search of higher yields, says Mark Bohlund, senior credit research analyst at REDD Intelligence.

Although defaults in Mozambique and Zambia dented some of this demand, “there is still a window open for issuance from better-managed African sovereigns,” Bohlund adds.

According to the International Monetary Fund, the stock of African eurobonds had already reached $140 billion in 2021, helping provide regional sovereigns “with a financial boost to their investment in infrastructure, technology and skills.”

But for Irmgard Erasmus, senior financial economist at Oxford Economics Africa, it has become “problematic that the slew of debt issuance seems to rest on the temporary windfall” of high commodity prices.