Dry spell for Eurobond on Covid-19 pandemic shocks
By Lewis Njoka, July 24, 2020
Lewis Njoka @LewisNjoka
Appetite for Eurobond dried up in the first six months of 2020 as many countries such as Kenya faced severe external stress.
Moody’s Investors Service warns a revival in market borrowing is highly unlikely, which is in sharp contrast to the rest of the emerging market, where the Eurobond is on course to hit an all time high this year despite the Covid-19 pandemic.
Compared to Sub-Saharan Africa, highly rated governments and companies are taking advantage of normalising financial conditions, to refinance and raise new revenue.
“Investment-grade debt issuers are driving a return to form in emerging market foreign-currency bond activity,” said Rahul Ghosh, a senior Vice President at Moody’s.
International bonds
“That said, not all issuers will benefit from more favorable conditions and access to international capital markets is likely to remain challenging for those with weaker credit quality,” he added.
In contrast to Sub-Saharan Africa, Middle East countries accounted for 34 per cent of emerging markets sovereign issuance in the first half of the year as governments in the region turned to the market to cushion themselves against the impact of the coronavirus and a reduction in oil prices.
Churchill Ogutu, head of research at Genghis Capital, attributes the dry up to Covid-19 pandemic saying he does not foresee any Sub-Saharan country issuing a Eurobond until perhaps the end of the year.
“For the Kenyan case, Covid is the reason. Initially in the budget, they had pre-empted Sh200 billion to be raised from commercial sources, both syndicated loans and the Eurobond.
But when Ukur Yattani’s team came on board, they said they want to change from commercial to concessional loans,” Ogutu.
Concessional loans
Until March, Yattani’s team had not raised any concessional loans but turned to emergency loans offered by the International Monetary Fund (IMF) and other similar organisations to plug in the deficit resulting from the Covid-19 pandemic.
“Countries are wary of going to the international market due to uncertainty. You don’t know what price you will get or even whether they will be successful,” he added.
Kenya’s last Eurobond issuance was in May 2019 where it raised Sh210 billion.