With the improvement in financial market conditions seen over the last few months, a number of African countries are reviving or devising plans to launch US dollar denominated bonds – or Eurobonds. While the majority of the volume will come from the larger, better established economies like Nigeria, Kenya and Angola, smaller players are also jumping on the bandwagon. In a recent example of this trend, Senegal decided to launch a US$200mn bond, which has a maturity of five years and offers a seemingly attractive yield of 9.25%. From my back of the envelope calculations, the bond represents but a small portion of the country’s existing external debt stock, which I have estimated at US$1,050mn at the end of 2009. Meanwhile, it is not likely to add substantially to external debt servicing costs, which I have calculated to be 0.68% of GDP in 2010, compared to 0.56% in 2009. So as potential investors, should we be jumping in there?

Well, despite what looks like a fairly benign picture, I think that recent statements (and decisions) by the Senegalese authorities will give punters some grounds for caution. Here I would point to the giant bronze statue that is now under construction in Dakar, which the government has said will cost the country a casual US$27mn, over one tenth of the value of the new bond issue. To top it all off, President Abdulaye Wade has suggested that he should personally be entitled to 35% of the revenue generated by the monument since it was created at his behest. By making this kind of claim, the authorities risk souring foreign perceptions of their country, and in the process undoing the benefits of some hard-won fiscal consolidation.

Tags: eurobond, External Debt, Fixed Income, Senegal
Posted in: Africa
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