JOHANNESBURG (Reuters) - African countries planning to tap international markets for funds will find the market receptive but the debt may come at a premium, partly due to the recent Dubai and European debt crises, the world’s biggest bond fund said on Wednesday.
Michael Gomez, portfolio manager and co-head of emerging markets at PIMCO, said there is demand for African sovereign debt, even in the secondary market, with some spreads at their tightest in 18 months.
Many African countries postponed planned Eurobonds last year due to the global financial crisis and Gomez said investors are ready for new issuance this year to diversify their holdings.
“There are indications Angola is looking at the market, and Kenya. My sense is that there will be appetite for those types of names,” Gomez told Reuters by telephone from London.
PIMCO has significant exposure in South Africa, Tunisia, Egypt and Gabon with limited holdings in Nigeria, Ghana and Ivory Coast.
“The emerging market external asset class has become bifurcated. Roughly two-thirds of countries have very strong credit quality and they trade very tight in spreads because of that perception, which is warranted.”
“Another third is very high-yielding ... with much lower credit quality. There is a little bit of a void in the middle of that continuum ... there are some opportunities for African countries to tap into that,” he said.
Countries plannning Eurobonds include Angola, Ghana, Ivory Coast, Kenya, Morocco, Nigeria, and Seychelles and some countries will have to do a hard sell to dispel negative perceptions given inconsistent data reporting.
“Part of the challenge, generally speaking ... is that the data dissemination is still not at a level we see elsewhere around the globe so telling the story and giving investors comfort with your fundamental data is quite important.”
Another worry for investors is that some countries are too reliant on commodities and thus would be vulnerable in case of another global economic slowdown and a resultant commodity price plunge.
Gomez said although a debt crisis in Dubai and some European countries would not directly affect African countries, investors were likely to be more cautious towards risk, and some African issuers would have to pay larger spreads than they otherwise would have.
“It’s fair to say, investors are now demanding more compensation per unit of risk than they were six weeks ago,” he said
“(But) if a country has shown economic orthodoxy ... has shown the ability to have a relatively lean and well-run government and financial system, the market will be relatively receptive.”
Greece’s fiscal troubles have sparked renewed market concern about the sustainability of public finances in Europe, and a crisis in Dubai rocked markets last year after Dubai World said it would request a standstill on billions in debt repayments.