Africa isn’t a country: bond market edition
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Africa isn’t a country: bond market edition

Rue Bouffles, Ile de Goree, Senegal, Africa

Senegal’s deal is free of the shadow cast by previous African sovereign private placements

Tarring all African countries with the same brush, and even mistaking to the continent as a single country, has been a common and embarrassing trope. So much so that in 2022, someone even wrote a book about it called Africa is not a country: breaking stereotypes of modern Africa.

The bond markets have not been entirely innocent of this over the years, although in finance there is, unsurprisingly, a fancy name for it: contagion risk. Thankfully, it is on the wane as one issuer demonstrated last week.

Senegal’s large private placement may have dredged up market memories of similar issues from other African sovereigns long ago — bonds that for one reason or another, drew attention for all the wrong reasons.

But, as EM investors and bankers have been preaching for nearly two decades, Africa is a continent full of diverse sovereign issuers, with differing resources, governments and debt management teams and policies. Each should be judged on its individual merits.

The first reaction of many to Senegal’s $750m 7.75% 2031 last week was a shudder. The last time there was a flurry of these private placements from Africa sovereigns, disaster followed.

Angola in 2012, then Tanzania and Mozambique all printed private deals that drew controversy. Perhaps it was no wonder that some investors and bankers stiffen with apprehension when they see large private placements from Africa.

But this type of issuance is not bad in and of itself. Investors point to the greater transparency and liquidity of benchmark bonds, but for the issuer, these attractive features have to be weighed against the speed and ease with which private placements can be done — especially when a borrower already has benchmark public bonds where the full process of documentation and scrutiny over pricing is already taking place. Private placements are a useful tool in volatile, markets where issuance windows can be fleeting.

In fact many CEEMEA sovereigns such as Romania, Israel and Hungary have printed private placements in the last year with little suggestion in the market that there is anything to be wary of about them.

Senegal’s private placement has many features in common with those notes. It is listed, it was arranged by JP Morgan, a top bank for CEEMEA bonds, and the issuer has existing public benchmarks outstanding.

The issuer has a history in the debt capital markets and a well respected debt management team behind it. The only similarity with other countries' past disasters seem to be that the issuer happens to be on the same continent.

All evidence suggests that Senegal's use of the private placement market last week was a sign of its maturing presence in the capital markets.

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