Benin and Ghana will test investors’ appetite for high-yielding but risky bets on frontier markets, as the neighbouring west African countries both sell bonds.
Ghana, the second-largest exporter of cocoa beans, is returning to the bond market on Tuesday even as it battles a tumbling currency. Meanwhile, Benin has hired a trio of banks to sell its first ever debt denominated in euros.
The two nations are heavily dependent on their agricultural sectors, and will be hoping to entice investors with juicy yields. A decade of low interest rates in the west has opened the global bond market to new emerging market borrowers as investors hunt for higher returns.
With a population of 11m and a gross domestic product worth about $11bn a year, Benin will be one of the world’s smallest sovereign borrowers. Fitch rates Benin, one of Africa’s biggest cotton producers and cashew nut exporters, single B, denoting the higher level of risk involved for buyers of the debt.
The country is experiencing “rapid economic growth, and relative political and institutional stability”, analysts at Fitch noted, but these strengths are set against “low development indicators, limited diversification of the economy and a weak external position”.
Benin, one of eight African countries whose currency is pegged to the euro, is aiming to sell six-year bonds at a yield of 6.375 per cent, while Ghana is issuing debt maturing in 8, 12 and 31 years. The 8-year bond is expected to offer a yield between 8 per cent and 8.5 per cent; the 31-year bond is expected to a carry a yield above 9.5 per cent.
“Investor sentiment for Ghana has ebbed a little recently and this is reflected in the depreciation of the Cedi”, Gregory Smith, a strategist at Renaissance Capital, noted of the country’s currency. The cedi has fallen more than 10 per cent against the dollar this year, a decline that quickened after the country’s central bank cut rates at the end of January.
About two-thirds of the money from Ghana’s bond will be used for infrastructure development with the rest used to clear maturing debts owed by the government, the finance ministry told local media. In Benin, the proceeds will be used to finance “priority projects in infrastructure, digital economy, electricity and [an] improvement in the standard of living”, according to an investor presentation seen by the Financial Times.
Although concern that global economic growth is slowing is a potential headwind for emerging market assets, there have been signs in recent weeks that appetite for so-called frontier borrowers remains undimmed. Uzbekistan sold a bond for the first time last month, while Egypt and Sri Lanka have also issued debt.
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