Nations in Sub-Saharan Africa have been locked out of international debt markets for 22 months now, and investors are increasingly betting the drought will soon end as countries seek funding for a slew of principal payments coming due this year and next.<\/p>\n\n\n\n
South Africa is due to repay $1.5 billion (R27.9 billion) in bonds this month, while Kenya has a $2 billion (R37 billion) maturity in June.<\/p>\n\n\n\n
Second-half principal repayments will then come from Senegal, Ivory Coast and Gabon. Ethiopia was slated for December but defaulted last month.<\/p>\n\n\n\n
It\u2019s already been a long wait for nations that need the funding and for high-yield investors eager for new deals. The drought in issuance began in April 2022 and lasted throughout 2023.<\/p>\n\n\n\n
The last time Sub-Saharan African countries spent a full year without a single international bond sale was in 2009, in the midst of the global financial crisis.<\/p>\n\n\n\n
\u201cThere has been limited supply from higher-yielding EM countries, so the demand may be robust for well-priced new issues with positive fundamentals,\u201d said Shamaila Khan, head of fixed income for emerging markets and Asia Pacific at UBS Asset Management.<\/p>\n\n\n\n
But issuance could be limited by still-elevated borrowing costs for most sovereigns in Africa, she said.<\/p>\n\n\n\n
One of the main contenders to try and end the lockout is Kenya.<\/p>\n\n\n\n
The spread between yields on Kenya\u2019s dollar debt and US Treasuries has narrowed by more than 400 basis points since reaching a record high last year.<\/p>\n\n\n\n
It closed at 599 basis points on Wednesday, according to JPMorgan Chase data, down from its high of 1,028 in April.<\/p>\n\n\n\n
\u201cKenya could well be the first to issue this year, and one would imagine that market demand would be forthcoming,\u201d said Simon Quijano-Evans, chief economist at Gemcorp Capital Management in London.<\/p>\n\n\n\n
If markets perceived that a new bond issue was coming, that could also help pull down spreads from current levels as it would imply an improvement in the country\u2019s financial position for 2024, he said.<\/p>\n\n\n\n
\u201cCombining that with a contraction in UST yields could help pull all-in yield for a 10-year USD bond closer to the 9% mark at some stage in the first half,\u201d Quijano-Evans said. Kenya\u2019s debt due in June currently trades at a yield of 15.8%.<\/p>\n\n\n\n
Other contenders to end the borrowing drought include South Africa, Angola and Nigeria, according to Morgan Stanley. Each could tap the market at yields around 10%.<\/p>\n\n\n\n
South Africa specifically could issue as much as $2.5 billion (R46.6 billion) in the second quarter, \u201cbut issuance of this amount will be very dependent on external financing conditions,\u201d strategists including Neville Mandimika said in a note to clients.<\/p>\n\n\n\n
Moody\u2019s cautions<\/strong><\/p>\n\n\n\n Still, Moody\u2019s Investors Service says the outlook for Sub-Saharan African sovereign issuers is negative this year. That\u2019s a reflection of risks from large debt burdens and the difficulties many countries will have refinancing at rates they can afford, analysts including John Walsh wrote in a report Wednesday.<\/p>\n\n\n\n Ethiopia\u2019s default on Christmas was a signal to international investors and trade partners of the heightened risk, said Robert Besseling, chief executive of Pangea-Risk, an advisory firm focusing on analysis of African economies.<\/p>\n\n\n\n \u201cMany will remain locked out of international debt markets, while for many, interest rates will be unaffordable,\u201d he said.<\/p>\n\n\n\n
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