LONDON (Reuters) - Zambia’s planned $500 million Eurobond will be welcomed by investors eager to increase their exposure to frontier market debt but the timing, as yet unknown, will be crucial given the global environment, analysts say.
In its 2012 budget, announced on Friday, the Zambian government said it would press ahead with the previous administration’s plans to launch a 10-year Eurobond. Finance Minister Alexander Chikwanda stressed the country, Africa’s biggest copper producer, would manage its debt prudently.
“The external environment is driving a lot of considerations at the moment and therefore finding a window of opportunity in the market so the issuer can get the best possible terms will be a crucial factor,” said Stuart Culverhouse, chief economist at Exotix.
Culverhouse said Zambia’s strong fundamentals, including increasing copper production, single digit inflation and relatively low debt, made it an attractive issuer.
“I think the underlying strengths are there to elicit investor interest, but the new government have to build on that and consolidate on that rather than reverse direction,” he said.
Razia Khan, head of Africa research at Standard Chartered in London, said the uncertain global environment would raise questions about the sustainability of copper prices.
“Of course the big uncertainty is what happens in the context of more global volatility and if we see a global slowdown what does that mean for copper prices,” she said.
Namibia’s debut $500 million, 10-year Eurobond was oversubscribed five and a half times and demonstrated the appetite for liquid African paper, said Florian von Hartig, head of debt capital markets at Standard Bank, one of the lead arrangers. He said 2012 was likely to be an active year for African issuance, market conditions provided.
“I think Namibia is just another sign of how much African credits are in demand,” he said. “The economy in Africa has been doing very well at times when the so-called developed world (has experienced) zero growth or even recession. Naturally, investors want to get exposure to an area where growth is steady so it ticks all the boxes.”
Investors said they would be interested in the Zambian Eurobond if the pricing was right.
“It would come down to the terms of the issue,” said Kevin Daly, emerging market debt portfolio manager at Aberdeen Asset Management, which bought the Namibian Eurobond.
“There’s enough African names in the market to use as a pricing reference. When you look at current yields on Senegal 10-year bond it’s around 8.3/8.4 percent, so that’s a good starting point for them.”