Africa Bonds

Moody’s published a cautious note on Tuesday in response to “business-friendly candidate” Cyril Ramaphosa’s slim victory in South Africa’s African National Congress (ANC) presidential elections on Monday. But the agency acknowledged that, if implemented, Ramaphosa’s reform priorities could “begin to address the weaknesses flagged” when the agency put South Africa on review for downgrade.

Nigeria is expected to become only the fourth sovereign globally — and the first in Africa — to issue green bonds, by selling a $30m-equivalent five year or longer naira government bond next week.

Steinhoff International’s revelation of accounting irregularities has smashed the reputation of a company that had been widely admired as a daring and astute user of capital markets. Sam Kerr, Virginia Furness, Aidan Gregory, Silas Brown and Bianca Boorer examine how the retailer's troubles have rocked confidence among bond, equity and loan investors and even shaken appetite for South African risk.

South African property investment company Growthpoint postponed a euro denominated five year note on Wednesday suggesting that even high quality credits from the country will struggle to do deals as investors turn increasingly negative on it.

The shocking fall from grace this week of Steinhoff International, the South African retail group, is causing pain for many in the equity-linked debt market, where it has issued €2.7bn of bonds. The potentially unsound nature of its earnings caused an 80% collapse in its share price this week, and has triggered a fast transfer of its convertibles into specialist hands.

No deal had appeared from Growthpoint, the Johannesburg listed property company, by lunchtime on Wednesday with two investors telling GlobalCapital that the issuer was struggling to drum up enough demand. The leads later sent out a note to say that the deal had been postponed.

South Africa based Growthpoint is talking a new euro-denominated bond at mid to high 2% yield, following investor meetings last week.

Johannesburg-listed real estate investment trust Growthpoint will next week test whether investor appetite for South African debt has been negatively affected by the series of ratings actions on the country last weekend.

Buying the dip has driven investor activity this week with South African bonds causing them to rally despite S&P downgrading the country, and a strong indication that Moody’s will drop its rating to junk in February.

Investors in South African bonds have bought on the dip because, even as the country’s economic outlook deteriorates, the only way for bonds is up. But positive reinforcement of the country’s poor governance and deteriorating economy reduces the incentive to reform and only postpones what will be a bigger investor stampede for the exit when the time comes.

Growthpoint, the South African listed property investment holding company, has picked banks for its first public deal since 2011. Though deemed an emerging market trade because of the jurisdiction of the issuer, it also appeals to corporate or high grade funds.

After a brief sell-off in response to S&P’s decision to cut South Africa’s foreign and local currency issuer rating last Friday, South African assets rallied on Monday, as investors buy on the dip — even though the country’s economic outlook is on a downward trajectory.