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Finance

Africa increases sovereign bond financing

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A railway construction site near Nairobi, Kenya. Demand for cash is on the rise to develop infrastructure.   © Reuters

LONDON -- African countries are taking more toward foreign-currency-denominated sovereign bonds. Much of this is due to strong investor appetite for higher-yield bonds thanks in part to the European Central Bank's additional easing measures.

     Some countries have recently issued such bonds, while others have begun preparations for joining the sovereign bond market, on the back of exploding demand for cash for infrastructure development and other purposes.

     A record high of $80 billion is expected to flow into Africa this year, according to the International Monetary Fund.

     On June 16, Kenya decided to issue dollar-denominated five- and 10-year Treasury bonds totaling $2 billion. The 10-year notes will carry a 6.875% coupon The country is expected to use $600 million to repay syndicated loans and spend the rest on development and other purposes.

     Many market players have welcomed the news. Bank of America Merrill Lynch said issuing government bonds would accelerate Kenya's economic growth, as it promotes investments in the country's infrastructure. Kenya's budget deficit dropped to just 5% of its gross domestic product, which has made it easier for the country to raise money.

     Until recently, market sentiment was slightly cautious about investments in Africa because of the U.S. Federal Reserve's decision at the end of last year, to scale back its quantitative easing program. However, U.S. long-term interest rates remain stable, prompting investors to pour money into Africa.

     In line with such improvement on the bond market, Ghana has begun preparing to issue government bonds. Ethiopia obtained its sovereign credit ratings for the first time ever from major ratings agencies in May.

     The ECB's monetary policy is also encouraging investments in Africa. On June 13, Morocco decided terms to issue euro-denominated 10-year government bonds. The issue is worth 1 billion euros ($1.36 billion) with a 3.5% coupon.

 

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