adminLUSAKA. — Zambia, which 13 months ago issued its first international debt, is considering the sale of a record US$1 billion eurobond to plug a budget deficit that contributed to a credit downgrade.
Africa’s biggest copper producer will try to contain some spending to reduce the fiscal shortfall to below the forecast of 8,5 percent of gross domestic product for this year, Treasury Secretary Fredson Yamba yesterday said.
The government this month raised its estimate for the gap from 4,3 percent and is finalising as much as US$250 million in syndicated loans as funding needs are pushed higher by government spending on wages and subsidies. Yields on Zambia’s US$750 million of bonds have climbed 161 basis points since being issued in September 2012 compared with an average 123 basis-point increase for dollar-denominated African debt tracked by JPMorgan Chase & Co.
Fitch Ratings yesterday lowered Zambia one step to B, five levels below investment grade. Standard & Poor’s downgraded its outlook to negative on October 25, while retaining its B+ rating.
The sale of a second eurobond “is one of the avenues available,” Yamba said. “We are looking at various options. We have to go out there and see which is the cheapest source.”
While the Southern African country would be able to sell a US$1 billion eurobond, it will be more expensive than its debut securities, Chris Becker, a market strategist at Johannesburg-based ETM Analytics, said by phone. A sale would follow record issuances by African nations, including debut bonds from Rwanda and sales by Ghana, South Africa and Nigeria, with plans by Tanzania, Kenya and Senegal to tap international markets.
“At the moment things are looking quite good and there’s a rush of issuances coming through,” said Becker. “It’s sort of a sweet spot for African eurobond issuances.”
Fiscal stimulus from the Federal Reserve will probably continue until next year, providing a window for new bond sales from African countries, he said. Zambia’s eurobonds may underperform others from the continent because of its aggressive issuance, while the Fitch downgrade will also push yields higher, Becker said. — Bloomberg.
Online Reporter