It’s been a great year for African government issuing debt on the international market and now Ethiopia is planning to sell its debut dollar bond worth about $1 billion before the yearend to fund its electricity, railway and sugar-industry projects.
The Horn of Africa nation is joining issuers, including Ghana, Kenya, Senegal and Ivory Coast, who sold what Standard Bank says is a record $15 billion of Eurobonds this year. Government and corporate issuers are seeking to benefit from investor appetite for higher returns before the US Federal Reserve raises interest rates as soon as next year.
Bloomberg reported that Ethiopia had picked Deutsche Bank and JPMorgan Chase Co for fixed-income investor meetings in Europe and the US beginning tomorrow, according to a person familiar with the matter, who asked not to be identified as the information is private.
Demand is expected to be strong as investors the strong diversification opportunity and bankers say that the bond’s eligibility for inclusion in the JP Morgan EMBI is a great sale.
“There is an incentive to issue before US rates start to gradually edge up from next year,” Samir Gadio, head of African strategy at Standard Chartered in London, told Bloomberg. “The market seems to expect that Ethiopia will price among the highest-yielding African sovereigns.”
The deal is important for developing Ethiopia’s access to the capital markets as well as reducing its dependence on foreign aid. Establishing a sovereign curve for Ethiopia will also make it easier for its corporate to access the international market.
Some market analysts still say the pricing will have to be very good due to the timing of the issue and the fact that Ethiopia does not have a determined sovereign curve.
“There is still a lot of appetite but given where they are close to the end of the year, it will have to be pretty attractive pricing,” a London based syndicated banker told Global Capital. “They may pay up versus a trade in January, but if they wait until then with geopolitical tensions and the normalizing rate environment, you can’t be sure where the market will be.”
Investment bankers have suggested that the Ethiopian bond yield will be pegged on the neighboring Kenya’s 2024 Eurobond as a reference point.