African companies' hard-currency bond sales are running at the fastest pace in five years, according to Bank of America Corp, which predicts issuance will remain robust over the coming years. Companies across the continent raised a total of $13.3 billion in bonds in the first nine months of this year, including $3.25 billion in private placements, Kay Hope, Bof A’s managing director for global research wrote in a note Monday. That’s second only to $17 billion raised in 2021.
Credit quality is improving, upgrades outnumber downgrades, and returns by rating tend to beat EM averages, Hope wrote, noting there have been no payment defaults in the sector since 2020. Corporate credit has broadened in recent years, with issuers from 11 countries tapping markets this year, versus eight in 2021. First Quantum Minerals Ltd. of Zambia, Angola’s Azule Energy and South Africa’s Sasol Ltd. are among this year’s issuers.
Going forward, Hope expects new supply to run at $8 billion to $12 billion a year. Tighter spreads should bring stronger and repeat issuers back, though higher interest rates may push some refinancing toward local markets and other sources such as loans and Gulf markets, she added. In terms of credit quality, the share of lowly rated CCC-rated debt is now at $2.1 billion, down from $3.2 billion five years ago, she estimates. While sovereign rating ceilings could cap corporate credit scores, she said that investors are increasingly looking through these caps to boost returns.
In terms of upcoming maturities, the sole African corporate maturity this year is $300 million, due next month from United Bank for Africa. Maturities next year rise to $2.2 billion across four issuers and jump to nearly $7 billion in 2028 across nine issuers, including Eskom Holdings Ltd., which has the biggest amount due of $1.5 billion due, followed by Tullow Oil Plc. at $1.2 billion and Transnet at $1 billion. Hope warned, however, that sovereign debt problems could seep through to African corporates. “With 7% of the $149 billion sovereign stock rated CCC/CC and Senegal seeking debt treatment, sovereign stress is a key risk to bear in mind,” she added.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing