Kenya's Eurobond delays highlight pressure on Ghana

As Ghana’s economic star wanes - with high inflation, interest rates and fiscal deficit, and a declining currency detracting from what is still respectable annual GDP growth - a major focus of an improving East African economy is facing problems in its plans to issue what prominent economists hope could be a landmark Eurobond for the East African region.

Ghana, whose finance ministry hopes to issue a third Eurobond sometime this year - although concerns over the country’s international debt ratings have prompted calls that Ghana should improve its ratings position before doing so - might watch events in Kenya with interest.

According to the Fitch ratings agency, Kenya, which had planned to issue a US$2 billion or more Eurobond early this year, now looks set to delay its plans from a currently contemplated March date until April at the earliest. This is largely due to global market conditions and the volatility in emerging and frontier markets.

Much as in the case of Ghana’s broader economy - rather than just the Eurobond itself - the current and anticipated US Federal Reserve’s recent tapering is seen as a major factor. The Kenyan authorities are wary of paying a high coupon rate in the same way as Ghana did last year with its second poorly-timed Eurobond. All this is despite a relatively positive current view of Kenya’s economy and the likely partial use of the proceeds from the Eurobond to repay an existing US$600 million syndicated loan.

Although not apparently reflecting contagion from the delay to Kenya’s Eurobond - and merely reflecting expected delays in receiving a credit risk assessment from international Citigroup which it requires to apply for and receive an international credit rating - neighbouring Tanzania has indicated also that it will delay its planned Eurobond issuance until probably next year.

This contradicts the earlier confidence of Tanzania’s central bank governor, Benno Ndulu, that a Eurobond of up to US$1 billion would be issued during the second half of 2014. It raises further questions given that Citigroup bankers recently denied they are responsible for the delay.

Meanwhile, Zambia, which has issued a Eurobond in the past, is also planning a second Eurobond later in the year. Like Ghana, it has recently received IMF backing, despite the high yields on its existing Eurobond issuance which, in part, is due to its low debt levels and strong growth. Ghana, although with a manageable debt level, faces a deficit problem that could make future Ghana bond investors nervous.

For more news and expert analysis about Ghana, please see Ghana Politics & Security.

© 2014 Menas Associates