Ethiopia: Africa's fastest growing economy plans to issue first US dollar sovereign bond

Addis Ababa

Ethiopia plans to sell its first dollar bond as Africa’s fastest-growing economy exploits record demand for the continent’s debt.

Ethiopia picked Deutsche Bank and JPMorgan Chase & Co for fixed-income investor meetings in Europe and the US beginning tomorrow, according to a person familiar with the matter, who asked not to be identified as the information is private.

The proceeds of the sale will be used to fund electricity, railway and sugar-industry projects, Finance Minister Sufian Ahmed said October 8.

The Horn of Africa nation is joining issuers, including Ghana, Kenya, Senegal and Ivory Coast, who sold what Standard Bank says is a record $15 billion (R165 billion) of Eurobonds this year.

Government and corporate issuers are seeking to benefit from investor appetite for higher returns before the Federal Reserve raises interest rates as soon as next year.

“There is an incentive to issue before US rates start to gradually edge up from next year,” Samir Gadio, head of African strategy at Standard Chartered in London, said today by e-mail.

“The market seems to expect that Ethiopia will price among the highest-yielding African sovereigns.”

African government and corporate Eurobonds sales this year beat 2014’s record $14 billion, Standard Bank said on November 13.

Sovereigns accounted for about 71 percent of issuance, according to the Johannesburg-based lender.

The yield on Kenyan dollar bonds due June 2024 was at 5.91 percent today, down from 6.88 percent when it was sold in June.

Zambian dollar bonds returned almost 17 percent this year, while Ghanaian debt earned 9.5 percent, according to the Bloomberg USD Emerging Market Sovereign Bond Index.

Emerging-market assets have benefited from record-low interest rates in developed nations that pushed investors to seek out higher returns elsewhere.

The end of quantitative easing by the Fed and the prospect of its first interest-rate increase since 2006 is drawing some of that money back to the US.

Ethiopia’s planned issue could be assisted by technical factors, such as scarcity, as the Eurobond will be the only tradable asset for international investors wanting exposure to Ethiopia, Standard Chartered’s Gadio said.

Ethiopia is building the continent’s biggest hydropower plant on the Blue Nile River, known as the Grand Ethiopian Renaissance Dam, that will probably increase electricity supply five-fold by 2020.

Ethiopia may need to invest about $50 billion in infrastructure over the next five years, of which $10 billion to $15 billion may come from foreign investors, the finance minister said last month.

Source: Bloomberg – Business, Financial & Economic News, Stock Quotes.

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