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All African Sovereign Debt Is Not Equal, Experts Warn

All African Sovereign Debt Is Not Equal, Experts Warn

From FinancialTimes. Story by Sophia Grene.

Since the declining years of the last century, the Jubilee Debt Campaign, a charity, has tried to convince the world that heavily indebted countries should be allowed write off what they owe.

Now many of the countries that were said to be unacceptably burdened by debt are voluntarily going to the capital markets to raise money by issuing government bonds.

African sovereign bonds, although still a tiny blip on the radar of global fixed income markets, have grown hugely since the financial crisis in 2008-2009.

Between 2012 and 2014, sovereign debt issuance in sub-Saharan Africa almost doubled. In 2012, issuance was $6 billion but by 2014, governments had raised $11 billion on global capital markets, according to a report by the the U.K. think-tank, Overseas Development Institute.

These bonds brought the total outstanding debt to around $25 billion, which is exclusively in dollar-denominated issues as international investors prefer not to add currency risk to an already exotic investment.

Bonds issued in a currency other than that of the issuing government are known as eurobonds, although there may be no connection with Europe or the euro. If denominated in dollars, they can also be called eurodollars.

Jubilee debt campaigners need not worry. These are not incompetent governments building up unsustainable levels of debt, but reasonable borrowers taking advantage of historically low interest rates to finance infrastructure needed for growth, according to the ODI — a view echoed by investors.

This should not be taken as carte blanche to treat all African sovereign debt as equal, experts warn.

“Investors have to pick between credits,” says Jan Dehn, head of research at Ashmore, an emerging market debt asset manager. “There is great variety between issuers in terms of governance.”

Although yields across Africa rose recently amid expectations of a U.S. interest rate rise, and have subsequently fallen as bond prices rose again amid relief that the increase had not materialized, many Africa watchers are keen to repudiate the idea that such a hike would spell the end of African’s debt boom.

Read more at FinancialTimes.