Angola domestic dollar bond draws scepticism
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Emerging Markets

Angola domestic dollar bond draws scepticism

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Analysts have shed doubt on whether Angola will be able to raise a $2bn foreign currency bond given the shortage of dollars in the African economy

Angola has launched a domestic foreign currency bond sale of up to $2bn in the face of market conditions that have made it tough for cash-strapped African governments to complete Eurobond funding plans.

The Opec nation is attempting to issue foreign currency bonds to fund budget shortfalls due to the fall in the price of oil, said finance minister Armando Manuel. He said “local savers” would buy the deal. “We have a market with adequate liquidity,” he said.

However, Tiago Dionisio, assistant director at Africa-focused investment advisory Eaglestone, questioned where the funds would come from, given tight foreign currency liquidity in the country. “There’s clearly a shortage of dollars in the Angolan economy,” he said. “There’s been a reduction in dollars sold to commercial banks in recent months.”

Managed devaluations in June and September have seen the kwanza fall more than 20% against the US dollar this year, while central bank reserves have fallen to around five months of import cover. In August the IMF highlighted widening spreads to the parallel foreign currency market, and a backlog of foreign currency orders at commercial banks.

Emerging Markets’ sister publication Global Capital reported in mid-September that Angola had mandated Deutsche Bank, Goldman Sachs and China’s ICBC for a Eurobond sale. That came after BNP Paribas declined a role in preparations to issue earlier this year.

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Manuel said it remained important for the sovereign to establish a benchmark, adding that the country was also looking at giving international commercial banks “the freedom to repackage” loans given to Angola via the bond markets. “We hope soon we will get into the [Eurobond] market,” he said.

Claire Schaffnit-Chatterjee, senior analyst at Deutsche Bank, said the country desperately needed to find more dollars to fund its heavy dependency on imports. Oil is the source of 95% of Angola’s export earnings and 75% of government revenues. The fall in the oil price has brought new deficits in both the government budget and the current account.

“A Eurobond would give them a boost,” she said. “Unfortunately the market is not in great condition.”

Angola has three sovereign wealth funds, though the biggest of these, the Fondo Soberano de Angola, which has about $5bn, was mandated in 2012 to save for future generations and help diversify the economy. “It’s not a stabilisation fund,” said the minister. The establishment of sovereign wealth funds in Angola has been very recent,” said Manuel.

Manuel said Angola was working to decrease the budget deficit, which reached 6.5% last year, by removing fuel subsidies and prioritising public investment towards areas such as water and sanitation. “Before the oil price fell we had more ambitious plans,” he said.

“We are doing well in terms of adapting our policies to adjust to the new environment,” he said, adding there was “no danger at all” the country would have to ask for IMF funding, pointing out that Angola could tap existing bilateral credit lines from China, Brazil and Europe.

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