July 24, 2020/United Capital
Early in the year, activities at the primary Eurobond market were business as usual for SSA countries. Gabon opened the year with a $1.0bn issuance in Jan-2020, followed by Ghana with a $3.0bn issuance in Feb-2020. Both auctions were widely oversubscribed with subscription rates of 3.5x and 4.7x respectively.
At the secondary market, yields on all the outstanding and new SSA notes re-priced higher in Q1-2020, owing to the synchronized risk-off sentiments fueled by the COVID-19 pandemic and the uncertainties involving the impact that it will have on the economy. However, the large-sized stimulus package unveiled across the developed market and recent recovery in economic activities, had since refueled risk-on sentiments by foreign investors, with SSA Eurobond yields declining from their March-2020 highs.
Looking ahead, we believe there is still room for new Eurobond issuances in H2-2020. Although this will depend on the level of improvement seen in both the external and domestic space, our optimism is buttressed by the recent recovery in foreign investors’ appetite for SSA Eurobond at the secondary market. Also, the need for most of the SSA economies to plug sizable budget deficit as well as refinance existing private debt obligations further adds to our optimism. At the secondary market, we expect interest to be dictated by the level of recoveries in the key export items of each countries. In all, our outlook for sustained expansionary monetary policy conditions in advanced economies (especially in U.S and Europe) should create a bullish bias for investing in SSA Eurobonds in H2-2020.
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