By Stanley Opara with agency report

Friday, 21 Jan 2011

The Federal Government has sold N60bn ($393m) 5-year and 3-year sovereign bonds at its first debt auction of the year.

The Debt Management Office, which disclosed this on Thursday, said it sold N30bn each in the 5-year and 3-year instruments at Wednesday’s auction with marginal rates of 11.13 per cent and 10.40 per cent respectively.

This, Reuters reported, was slightly lower yields than at the previous auction in December.

In a related development, the Federal Government had issued guidance for its $500m debut Eurobond indicating a yield of around 7 per cent, higher than that of West African peer, Ghana, according to market sources.

The guidance for the 10-year paper said the timing and coupon had yet to be announced. The issue is expected on Friday.

Ghana’s Eurobond, due to mature in 2017, is trading at around 6.2 per cent.

At least five other frontier sub-Saharan governments, Kenya, Uganda, Tanzania, Zambia and Angola, were contemplating debut foreign-currency debt offerings in 2008, but their plans were blown off course by the global financial crisis.

With that crisis less pressing and international investors hungry for high-yielding debt that does not carry any currency risk, the external environment looks favourable for them to revive the proposals and take the plunge.

Yields on Ghana and Gabon’s 2007 issues were unmoved even as that on Ivory Coast’s issue, the continent’s biggest single foreign currency bond, soared from mid-December as Abidjan looked increasingly unlikely to make a repayment due at the end of the month.

“So far, so good,” said Konrad Reuss, head of ratings agency Standard & Poor’s for sub-Saharan Africa.

“We haven’t seen any contagion from Ivory Coast, and certainly a successful Nigerian bond would be another important milestone to open up the market for African issuers again,”he said.

However, most analysts expect healthy demand from international investors that should result in a coupon comparable to or lower than Ghana’s issue, now yielding 6.3 per cent, and Gabon’s 5.3 per cent.

“You’ve got governance concerns in Nigeria and the elections coming up but the debt stock is so low that the ability to repay looks more robust than it does in Ghana even,” said Graham Stock, chief investment strategist at Insparo Asset Management in London.

Ghana was the first sub-Saharan African country after South Africa to issue foreign currency debt, with a $750 million bond issued in late 2007 with an 8.5 percent coupon. Gabon followed shortly after with an issue carrying an 8.2 percent coupon.

Finance minister, Kwabena Duffuor told Reuters this week Ghana was “still working on” a follow-up $500m-$700m issue originally slated for 2010, and stressed that market conditions were not to blame for the delay.

Kenya has also had plans going back as far as 2008 to issue a debut Eurobond, but a senior treasury official said last month it would not take the plunge until next fiscal year at the earliest.

Source: Punch