Thirty years on from Band Aid Ethiopia readies first bond

Ethiopia has started marketing a debut dollar bond issue, aiming to take advantage of record demand for high-yielding African debt to fund electricity, railway and sugar-industry projects.

The 10-year bonds may be priced to yield about 6.75 per cent. Deutsche Bank AG and JPMorgan Chase are managing the sale, which may price today.

Africa’s fastest-growing economy and biggest coffee producer is joining issuers, including Ghana, Kenya, Senegal and Ivory Coast, who sold what Standard Bank Group Ltd. 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 Federal Reserve raises interest rates as soon as next year. “It offers diversification and that’s what portfolio managers really like,” Lutz Roehmeyer, a money manager in Berlin overseeing $1.1 billion of emerging-market debt at LBB Invest, said by phone yesterday. “It’s good that we have more choice from Africa. The first Ethiopian bond is more interesting that the fourth one from Ghana.”

Ethiopia will probably need to invest about $50 billion over the next five years, of which $10 billion to $15 billion may come from foreign investors, Finance Minister Sufian Ahmed said on October 7th.

Most of the capital raised will be used to develop sugarcane plantations, a 6,000-megawatt hydropower dam on a tributary of the Nile River and the country’s railway network, he said.

Band Aid

Almost 30 years after pictures of Ethiopian children with distended stomachs were used to raise money by Bob Geldof and Band Aid, the country is growing faster than any other African economy, at an average of 10.9 per cent over the past decade, International Monetary Fund data shows. African government and corporate Eurobonds sales this year beat 2013’s record $14 billion, Standard Bank said on Nov. 13. Sovereigns accounted for about 71 percent of issuance, according to the Johannesburg-based lender.

Ethiopia was assigned its first credit ratings in May. Moody’s Investors Service rates it a non-investment grade B1 with a stable outlook, while Standard and Poor’s and Fitch Ratings awarded the East African country B, one grade lower. Moody’s yesterday assigned a provisional B1 rating to the bonds, saying the nation’s economic prospects, while favorable in the long term, were constrained by political risks and dependence on volatile agricultural commodities. Higher Yield

Ethiopia would probably have to pay a yield 50 to 100 basis points higher than Kenya, whose Eurobond due in June 2024 yielded 5.90 percent at 10:35 a.m. in London, because its poverty levels are still high, LBB Invest’s Roehmeyer said. Its gross domestic product per person of $579 is just over half that of Kenya’s $1,099, according to Standard Bank.

“Ethiopia’s much poorer,” said Roehmeyer. “The economy isn’t really diversified and well-developed. Kenya’s institutions are not like those in Germany or the UK. But at least it has better structures than Ethiopia.”

Bloomberg

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