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Egypt, Ivory Coast crises hit African Eurobonds

A less-liquid $200 million 2014 issue by Senegal has also fallen in price.

February 1, 2011 3:02 by



Turmoil in Egypt and a crisis in Ivory Coast that led to a formal Eurobond default on Tuesday have hit other sovereign debt issues in Africa, sending yields higher as investors fret about political risk.

In the last four days, the yield on Ghana’s $750 million 2017 issue , a benchmark for frontier sub-Saharan foreign currency debt, has jumped from below 6.3 percent to 6.8 percent, its highest since August.

Similarly, Gabon’s 2017 issue has seen its yield rise from 5.3 percent to 6 percent as popular protests have gathered steam in Egypt and come closer to toppling Hosni Mubarak, president for the last 30 years.

A less-liquid $200 million 2014 issue by Senegal has also fallen in price, sending the yield to 8.6 percent, its highest since July last year, from 8.4 percent for much of January.

The yield on Nigeria’s new $500 million benchmark issue  has also climbed marginally, to 6.9 percent, since it started trading last week.

While it is hard to draw general conclusions across Africa, the social conditions that sparked uprisings in Tunisia and Egypt, and the political conditions that caused Ivory Coast’s turmoil, may have parallels elsewhere on the continent.

“First, the lesson from North Africa is that relatively autocratic regimes with long-term rulers who are perceived as corrupt and having lost touch with their populations, can face overthrow by protests if they spiral out of control,” Citi analyst David Cowan said in a research note.

“Alternatively, the lesson from West Africa is that closely contested elections can be the spark for political chaos.”

Although formal default had been widely expected, the yield on Ivory Coast’s $2.3 billion Eurobond <XS0496488395=R> has crept higher as the Jan. 31 deadline for a $29 million dollar coupon payment neared.

On Tuesday, it hit a record 18.1 percent after the deadline expired without bondholders receiving funds from incumbent President Laurent Gbagbo or challenger Alassane Ouattara, internationally recognised as the winner of the Nov. 28 poll.

SIMILARITIES

Ghana has a relatively vibrant democracy but one whose political landscape points to a close result in elections due at the end of next year, increasing the chance of an Ivory Coast-style post-poll stand-off between rivals.

Although distant geographically from North Africa, Gabon, a normally sleepy oil-producing nation sitting on the equator, bears political and social similarities.

Long-time ruler Omar Bongo stepped down in 2009, after which his son, Ali Bongo Odimba, won a disputed election that triggered days of rioting across the country after allegations of vote rigging.

The political temperature has risen markedly after opposition leader Andre Mba Obame declared himself president a week ago, and security forces have used tear gas to disperse demonstrators in the capital, Libreville.

Domestic bond yields in many frontier African countries have also risen in the last few months although that is more to do with projections of rising inflation.

All three major credit rating agencies have downgraded Egypt in the past few days and said they may cut its rating further, citing the political turmoil and its likely economic effects.

The yield on Egypt’s $1 bln Eurobond due 2020  has risen 120 basis points since the demonstrations started, climbing above 7 percent despite a slight rebound in Egyptian assets on Tuesday.

The cost of insuring the country’s debt against default hit its highest level since April 2009 last week, but has since fallen about 40 basis points, with five-year credit default swaps quoted at 412 basis points on Tuesday.

(Additional reporting by Carolyn Cohn in London; Editing by Catherine Evans)



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