Nigeria to Ghana Eurobonds plunge as oil rout hits Africa

Sub-Saharan African Eurobonds fell, pushing yields on securities from Nigeria to Angola to record highs, as sinking oil prices put pressure on commodity producers.

Rates on Nigerian notes due July 2023 jumped 80 basis points to 7.36 percent by 4:35 p.m Friday in London, an all-time high and compared with 5.85 percent a week ago. Those on Ghana's August 2023 bonds surged 124 basis points to 10.3 percent, their highest ever. Yields on five-year Angolan debt jumped 71 basis points, the most on record, to 7.72 percent.

Nigerian borrowing costs are now higher than those of Kenya, Rwanda, Senegal and Ivory Coast, all of which have lower credit ratings. Africa's largest economy and crude producer is having elections in February as Brent's plunge below $65 a barrel threatens export earnings, 95 percent of which come from oil, and government revenue, 70 percent of which comes from the commodity. Oil and related industries account for 45 percent of Angola's gross domestic product and the bulk of its exports.

“This week the bearishness regarding oil credits really caught up with the market,” Razia Khan, head of African economic research at Standard Chartered Plc, said by phone from London. “In some instances, looking at how the debt is trading, you think it's overdone. But it is very much capturing the mood of the market.”

'Vicious Cycle'
Sub-Saharan bonds were also pressured as investors rushed for European and American debt on signs of moribund inflation in developed nations. Yields in Germany and six-other euro-area nations dropped to record lows today and U.S. 30-year yields are set for the lowest close since 2012, fanned by the prospect that central-bank measures to rekindle inflation would involve efforts to keep down borrowing costs.

Yields on the dollar debt of Gabon, which derives about 70 percent of government revenue from oil, climbed 78 basis points to 7.92 percent. The notes had lost 6.8 percent in the week through yesterday, more than any developing nation except Venezuela and Ecuador, according to Bloomberg indexes.

While oil producers led declines, debt from Senegal to Zambia joined in the losses. Rates on Zambia's April 2024 debt rose 42 basis points to 7.62 percent, a six-month high, while Senegal's July 2024 notes increased 109 basis points to a record 7.84 percent.

“The selling started with oil-related credits and spilled over into everything else,” Claudia Calich, who helps oversee $1.5 billion of emerging-market assets at M&G Ltd, said by phone from London. “In the near term, it's a vicious circle. Oil goes lower, which reprices the oil credits and then everything else is repriced.”

Bond Ratings
Among sub-Saharan dollar bond issuers, only debt from South Africa and Namibia are rated above junk, according to Standard & Poor's. Ghana was cut one level in October to B-, six steps below investment grade, Nigeria is three levels higher at BB-, while Rwanda stands at B and Kenya at B+. Ethiopia, which sold debut Eurobonds last week at a 6.625 percent yield and which now trade at 7.82 percent, is rated B at S&P, while Ivory Coast is rated B1 at Moody's Investors Service, one level under Nigeria.