Angola will decide in July whether to issue a global bond, the proceeds of which would be used to reduce its deficit rather than to finance infrastructure, its debt management head has said.
Carlos Panzo, national director for macroeconomic management in the Angolan Ministry for Economic Coordination, told Emerging Markets that the proceeds of a prospective bond issue would be used to shore up the public purse, rather than to fund public investment programmes, since the government already dipped into its foreign exchange reserves in the bull run to pay for public projects.
“There would be capacity constraints if we decided to finance more projects, so the bond will be specifically targeted for balance of payment support”, he said in a telephone interview.
Panzo said the timing of the international bond issue would be fixed following the July budget. “We are in a wait-and-see mode, and we will only know once the 2010-11 budget is finalized in July if and when we will come to the markets,” he said.
Angola was last week rated B+ from Standard & Poor’s and Fitch Ratings, and B1 by Moody’s. The credit ratings pave the way for an international bond sale.
The national budget swung from a large surplus in 2008 – thanks to high oil prices – to a 15% deficit in 2009 and a projected 2.6% budget gap in the 2010 fiscal year, according to Fitch Ratings. Angola has drawn down $514.5 million of its $1.3 billion IMF stand-by arrangement, agreed in November 2009.
Oil price volatility highlights the need for improved budgetary management, said Richard Fox, director of Middle Eastern and African sovereign ratings at Fitch.
“I would be concerned if Angola issues $4 billion – a benchmark the government said it was considering last year – but $1 billion or so it would not affect the rating, due to their low public debt burden.”
Angola’s external debt-to-gross domestic product ratio was 22.8% in 2009. In Angola’s bailout package with the IMF, the global policy lender pencilled in a prospective bond issue of up to $2 billion in the 2010 fiscal year, said Fox.
Economy minister Manuel Nunes Junior said in an April 26 letter to the IMF that “our debt management capacity is yet to be at par with those of many other emerging market countries”, but added that the country was beefing up its debt management capacity.
Panzo said that Angola was becoming more fiscally transparent and had adequate debt management mechanisms in place to handle an international bond this year.
Although not ruling out the potential for “market volatility in the eurozone” that would hamper the prospects of a prospective Angolan bond sale, Panzo said: “Increased enthusiasm for the country, and investor appetite for emerging market risk, gives us confidence that any debt sale would be a success.”
Stuart Culverhouse, head of research at boutique investment firm Exotix, reckons a prospective $1 billion issue would pay a 1-1.5% premium to Ghana’s $740 million benchmark that currently yields 7.4%. “The perception of risk in Angola is higher, due to its oil dependency and the current IMF programme,” he said.