Angola raises $1.75bn in bond market, as Africa appetite returns

By Kanika Saigal
Posted on Friday, 8 April 2022 11:31

Angola's President Joao Lourenco
Angola's President Joao Lourenco speaks during the UN Climate Change Conference (COP26) in Glasgow, Scotland, Britain, November 2, 2021. Adrian Dennis/Pool via REUTERS

Angola became the second African country to venture into the Eurobond market this year, raising $1.75bn in a 'well timed' issuance.

The ten-year fixed bond was over two times oversubscribed and priced to yield 8.75%. Citi and Deutsche Bank were the bookrunners.

“This third issue has been timed well,” says Tiago Dionisio, senior research analyst and assistant director at Eaglestone Securities based in Portugal.

“As the country’s most recent IMF program has come to an end, the economy is relatively strong and the fiscal situation has improved – an attractive prospect to potential investors,” he says.

Nigeria also recently completed a bond sale, reviving hopes of rising global interest in African debt, raising $1.25bn, albeit at a premium.

Around $750m raised from Angola’s most recent issue will be used to finance some of the debt due in 2025 and 2028, according to Bloomberg.

Angola’s first foray into the international debt market was a $1.5bn ten-year Eurobond in 2015, with subsequent ten and 30-year issues raised in 2018 and again in 2019.

“The new ten year was priced fairly cheaply, offering about 50bps of value compared to the existing 29s (assuming the same USD benchmark), and helping to generate strong demand,” says Stuart Culverhouse, chief economist and global head of fixed income research at emerging market research and data company Tellimer.

“Investors will also be attracted by the tender element, which looks like prudent debt management, although details are unclear at this stage,” he says.

Elections

As Angola prepares for the elections this August, its economy is in good shape following a three-year IMF support program, which ended in December 2021.

Under the program, the IMF disbursed $4.5bn in total to Angola to restore external and fiscal sustainability, improve governance, and diversify the economy to promote sustainable, private sector-led economic growth.

“Following the program, the kwanza has stabilised, the black market is more or less non-existent now and public debt has fallen from around 100% of GDP in 2020 to around 80% currently,” says Dionisio.

“Inflation in the country is still relatively high, but this is the case globally, as many countries continue to grapple with the economic fallout of Russia’s invasion of the Ukraine. Nevertheless, we expect inflation in Angola to settle in the single digits by 2023,” he says.

According to forecasts from credit ratings agency Fitch, real GDP growth is expected to hit 2.9% by 2023 after 0.1% GDP growth in 2021 and a contraction of 5.1% in 2020. Meanwhile, inflation will average at around 25% in 2021 and fall to 16% in 2022, they say.

In January 2022, Fitch upgraded Angola’s long-term foreign-currency issuer default rating (IDR) to ‘B-‘ from ‘CCC’ with stable outlook.

Oil prices

Angola – Africa’s second largest oil producer, which accounts for approximately 90% of total export income – is unlikely to benefit from lofty oil prices due to the country’s external debt obligations to China.

“Following Angola’s most recent budget announcement, we understand that once oil prices exceed $60 a barrel, the difference must be used to repay debt to China, so there will be no extra export revenue for Angola in the short-term,” says Dionisio.

At the same time, oil production in Angola continues to dwindle due to ageing infrastructure and limited new investment in the sector. “We forecast production to increase to 1.20 million barrels per day in 2022 and to remain there in 2023, but this is predicated on new production coming online” says the note published by Fitch.

“A failure to do this could see production falling by 10% to 15% per year.”

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