SA and Nigeria plan sovereign bonds

South Africa and Nigeria intend to issue sovereign bonds worth $2.5 billion (Sh188 billion), indicating their confidence in the global financial markets that may be emulated by other prospective issuers, including Kenya.

South Africa is seeking $2 billion (Sh150 billion) while Nigeria has concluded arrangement to float Sh38 billion ($500 million).

Both countries have waited for the market to cool after the turmoil that has ravaged them in the last one-and-a half years.

Kenya postponed its Sh38 billion ($500 million) eurobond initially set to be issued in financial year 2008/9 because of the turmoil that gripped key source markets for capital.

But Treasury officials have promised that the Kenya sovereign bond would be issued as soon as circumstances in the global markets improve substantially.

Already advanced markets have shown signs of having recovered although consumption and production is still weak and there has been talk of a double-dip recession — where an economy seems to recover only to slip back into recession.

Nigeria’s Debt Management Office announced in last month that it had concluded arrangements to float the country’s first international sovereign bond.

An approval by the Nigeria’s federal parliament is still being awaited before the issue can be unrolled.

New York-based Moody’s Investors Service said in an e-mailed press release that it had assigned South Africa’s issue a strong (A3) rating to the new $2 billion issue— which is at 5.5 per cent interest — indicating it is prudent to invest in it.

The rate is the lowest the country has ever paid for dollar borrowing but any slippage in fiscal prudence and political upheaval could attract a risk premium.

Income disparities and poverty in SA are seen as political risky factors.

SA Finance Minister Pravin Gordhan announced in his February 2010 budget speech that the government would be accessing the global bond market more frequently in the next few years for funding.

Kristin Lindow, Regional Credit Officer for Europe and Africa in Moody’s Sovereign Risk Group said: “We expect the government to issue at least one bond every year for the coming three years, given its increased financing needs following the recent recession.”

Moody’s said the South African government will continue to have relatively low vulnerability to external debt, even with the planned issuance, since it is starting from a low base.

As a proportion of its total debt, foreign currency debt will actually decline because of increased borrowing requirements domestically.