IFR Africa Report 2013

To see the digital version of this report, please click here. To purchase printed copies or a PDF of this report, please email gloria.balbastro@thomsonreuters.com. Africa’s stronger credits, especially those with a track record in the syndicated loan market, are attracting an ever-growing pool of international banks to their loans, and demand has pushed pricing down closer to levels more commonly seen in Europe. Ghana’s cocoa industry regulator Cocobod, which taps the loan market on an annual basis, is a recent example. In September it signed a US$1.2bn loan priced at 70bp over Libor, 105bp lower than the borrower’s US$1.5bn 2012 deal. “Cocobod is a good example of an investment-grade business in Africa which has regular access to a lending base being subject to the whims of the international banking market,” said one banker involved in the deal. “Last year everyone was afraid to do underwriting so there was just one bidding group, this year there were three bidding groups so the pricing has reduced.” Cocobod attracted a number of new European banks not previously involved in its annual deals. “I wanted to increase my African exposure so it’s important to get into a benchmark deal like Cocobod, cocoa prices are stable and the company is good,” said a London-based head of syndication at a European bank. While more international banks are seeking to increase their presence in Africa, there is still a relatively small amount of deals that their credit committees are comfortable approving. As a result, their activity is focused primarily on the most secure credits. “There are a limited number of deals which will suit the risk appetite of credit departments of international banks, so competition for these deals has pushed pricing down,” said a banker speaking at the Loan Market Association conference in London in September. “They are afraid to step into deals below this level where there is more value but perhaps more risk.” Old school syndication A feature of top-tier African loans this year is the survival of the syndication process, which has almost evaporated in the rest of EMEA, where club deals dominate. “While the European loan markets have evolved into clubs, Africa is really the only truly syndicated loan market left,” said a second banker at the LMA conference. Angolan state oil company Sonangol’s US$2.5bn five-year loan and Cocobod’s annual financing were each provided by 24 regional and international banks, while Nigerian cement group Dangote’s US$3.3bn oil refinery financing involved 12 lenders. In addition, South Africa-based Aspen Pharmaceuticals has launched a US$2.04bn multi-tranche term loan into general syndication having completed the senior phase with nine banks. Local relationship The interplay between international and local banks on African deals is complicated by the prohibitively high cost of US dollar funding for local banks and international banks’ caution over African exposure. Many local banks, for whom the price of dollar funding can be as high as 400bp, were priced out of Aspen’s loan, which carries a relatively tight margin of 240bp/250bp.  However, several Nigerian banks participated in the Dangote loan, which priced much higher at 450bp. “We gave the local banks a little margin over the cost of funding,” said one banker close to the Dangote deal. “It was quite tight but they are willing to do it because they want future business from the borrower.” Nigerian rush Nigerian banks are queuing up to tap the international loan market over the coming months in an effort to boost their dollar funding. Skye Bank is leading the march having mandated Standard Chartered to arrange a US$100m one-year facility, which is expected to price between 400bp and 500bp. Skye raised its first internationally syndicated loan in May 2012 when it signed a US$150m five-year amortising loan through mandated lead arrangers African Export Import Bank, Citigroup and Standard Bank. First City Monument Bank is looking for a two-y

To see the digital version of this report, please click here. To purchase printed copies or a PDF of this report, please email gloria.balbastro@thomsonreuters.com. Sub-Saharan Africa, ex South Africa, markets fell back in August, led by Zimbabwe (down 22% following the latest election victory for President Mugabe) and Nigeria (down 6.1%). Smaller markets have continued their rises such as Malawi up 25% on the month, but on low volumes. In the year to the end of August, Malawi and Ghana have been outstanding with rises of 53% and 47% respectively. Nigeria and Kenya year to date are up 23% and 24%, respectively, and Zimbabwe – even factoring in the post-election correction – is up 21%. August also marked the arrival of a new exchange as Seychelles opened for business with the listing of SACOS Insurance. As ever, currency movements have significantly impacted US dollar-based returns for the year, for the positive in Uganda but adversely in South Africa, Nigeria, Botswana, Ghana, Zambia and Tanzania. The South African rand has slumped 17%, outpacing gains in the all share index, to leave dollar performance down 10.9%. The graph sets out the 2013 US dollar returns for SSA and the individual markets. Excluding South Africa, for both reasons of scale and currency, Sub-Saharan Africa as a region has risen 23% in the first eight months of 2013. Despite the emerging and frontier markets sell-off, the performance to date is strong. The market capitalisation of the Top 30 companies in August 2013 was down 5.8% on the month to US$79.5bn, but up 21% year to date and up 44% over the past twelve months. Our analysis shows: • Sixteen companies with a ROE above 25% • Ten companies with a historic P/E below 10.0 • Eight companies with a dividend yield above 5% • Seven companies with a price/book value below 1.5 times. • ROE’s generally exceed the cost of capital and inflation. Higher ROE’s are rewarded with higher valuations SSA ex SA Top 30: Banks ·      Investors reward high ROE’s handsomely. ·      From the graph, on a semi-log scale, there is strong correlation of ROE and Price/Book value.  ·         Following the EM and FM sell-off in Q2 2013 there is now greater divergence from the trend line, implying greater under-valuation. ·         UBA, Zenith Bank, GTB and ETI look undervalued. ·         Stanbic IBTC, Union Bank and MCB look overvalued. This, we believe, has important implications for banks. Specifically, a higher ROE generates more capital for the bank to grow without recourse to shareholders, ie dilution, as well as enabling higher dividends to be paid. SSA ex SA Top 30: Industrial & Commercial Companies ·      As with banks, investors reward high ROE’s handsomely.  ·      From the graph, on a semi-log scale, there is strong correlation of ROE and Price/Book value.  ·      Following the EM and FM sell-off there is now greater divergence from the trend line, implying greater under-valuation.  ·      Dangote Cement, SONATEL, Lafarge WAPCO, Delta Corp and Econet Wireless appear under-valued.  ·      PZ Cussons Nigeria, Cadbury Nigeria, Guinness Nigeria and East African Breweries look overvalued.

To see the digital version of this report, please click here.To purchase printed copies or a PDF of this report, please email gloria.balbastro@thomsonreuters.com.It is widely assumed that Africa has four major trading partners: Europe, the US, China, and everyone else. This is fallacious, as it overlooks the country that ranks as Africa’s real fourth largest trade partner, India.New Delhi has been slower off the mark in Africa in recent years than Beijing, which has cemented solid trading ties across the continent. Yet the Indo-African relationship is older, more nuanced and frankly more compelling than many realise.At this point, it’s worth doing a little myth busting, in the hope of skewering some incorrect assumptions.Myth number one: India is a laggard in Africa. This one is easy to dispel. Annual Indo-African trade, worth just US$4.6bn in 2000, soared to US$57bn in 2011 and is on track to hit US$90bn this year, according to the IMF and Standard Chartered. Africa’s share of trade with India rose to 7.6% in 2011 from 5.2% in 2000. Only China has seen two-way trade with the continent grow more quickly over that period.Myth number two: India is playing catch-up in Africa. This flies in the face of reality. Sino-African trade has grown at a compound rate of 26.3% since 2000, with Indo-African trade expanding only marginally less slowly over the same period, by 24.8%. “The pace of growth in Africa-India trade and investment over the past decade is rivalled only by China-Africa trade,” said Sarah Baynton-Glen, Africa economist at Standard Chartered.Myth number three: India only trades with East African nations. It’s true, Indians are historically happier on Africa’s eastern seaboard – and little wonder: Indian merchants have plied the coasts of Kenya, Mozambique, and South Africa for millennia, benefiting from proximity and favourable trade winds – but again that bypasses the hard facts.Two of India’s top-four regional trading partners are Angola and Nigeria, deep in the western half of the continent. Some of India’s fastest growing ties are with nations with little or no cultural links to the continent, notably Ethiopia and Sierra Leone.Indeed, India, and not China, the US or Europe, was oil-rich Nigeria’s leading trade partner in 2012, accounting for 10.2% of the latter’s total global trade. “Africa remains seen by India as a growing market that’s opening up fast and which has huge potential,” said Deepak Lalwani, director of London-based, India-focused brokerage Lalcap.Myth number four: India’s corporates haven’t got their act together in Africa. There is an element of truth in this, but again only because India is so often compared with China. Beijing-based state-owned enterprises have indeed run amok in Africa in recent years, seeming to gobble up every natural resource going.And it’s also true that Indian state oil giants often lose out in direct bidding wars with Chinese SOEs. But overall, leading Indian corporates, whether publicly owned firms or private enterprises backed by state cash, have credible track records in Africa. StanChart’s Baynton-Glen said that Indian investments in Africa have been “largely driven by state-supported private sector companies”, with cumulative investments, notably in agriculture, oil and telecommunications, exceeding US$35bn by the end of 2012.Comfort zoneYes, Indian corporates could be doing far more in a continent situated well within their comfort zone. Africa has far stronger genetic, cultural and commercial links with India than it has with any of its three leading trade partners. And bloodlines aside, the two markets, both of which exploded onto the economic stage in the mid- to late 2000s, are tailor made for one another.India, vast and under-resourced, has cash to spare and a growing hunger for energy, minerals and foodstuffs. Africa provides an equally vast captive audience for upmarket Indian goods and services, from healthcare and pharmaceuticals to telecommunications and bankin

To see the digital version of this report, please click here.To purchase printed copies or a PDF of this report, please email gloria.balbastro@thomsonreuters.com.First came the Asian Tigers, engorged by the go-go 1990s. Western funds roared in, dazzled by the returns on offer in Indonesia and Malaysia, departing as the Asian Financial Crisis unfolded.In the 2000s it was India’s turn, as investors scrambled to buy Mumbai-listed securities. Many departed (though lots remain) as India’s palpable shortcomings – slowing growth exacerbated by corruption, throttling red tape and antipathy toward foreign investors – emerged.In recent years, investors seeking frontier-market levels of risk and reward found a new haunt: Sub-Saharan Africa. Once a pariah region dotted with a precious few success stories (South Africa, Ghana, Nigeria), its fortunes waxed in the years just prior to, and more notably since, the collapse of Lehman Brothers.The broad reasons for this success story are well known. Resource-hungry Chinese corporates surged into the region, building infrastructure and snapping up commodities (energy, minerals, foodstuffs) to fuel the country’s home fires. Japanese, Korean, Indian and South-East Asian corporates followed in its wake. Global investors and merchant banks then piled in behind, snapping up growth-oriented securities.All good things come to an end. Recent months have been tough on SSA states and frontier-market investors alike. Fed chair Ben Bernanke started the rot on May 22, signalling the beginning of the end of quantitative easing. We aren’t quite there yet: The Federal Open Market Committee opted in its September 19 meeting to delay tapering, likely until December, in the face of a fragile US housing market and tepid growth forecasts.Bernanke’s May speech was enough to convince many global fund managers, at least in the short term, to dump emerging market holdings, causing African stocks to crater and bond yields to spike. Economists rushed to reverse previously positive prognoses. Sagging Chinese growth figures through the first two quarters of 2013, likely to hit export-focused African nations hardest, have not helped.But is this the full story? Sub-Saharan Africa is not the utter shambles it once was. Barring a few, genuinely failing states, economic predictors remain broadly upbeat. Shilan Shah, Africa economist at Capital Economics in London, said that the regional growth story – “high growth, rising employment, a positive long-term outlook” – remains firmly in place.Economic optimismMoreover, confidence, vital but often imperceptible, continues to suffuse the region. Africa remains a staggeringly cheery place. Nine of the world’s 10 most economically optimistic countries are found here, led by the likes of Guinea and Rwanda, an August 2013 Gallup poll found. (Grounds for economic pessimism was most commonly found in Europe and, rather surprisingly, Singapore.)What appears to be happening is that Sub-Saharan Africa is again reverting to being a multi-speed continent, only this time with different and sometimes surprising countries playing the diverging roles of hare and tortoise, leader and laggard.Higher-growth economies will be mostly found on the Indian Ocean seaboard. GDP in Ethiopia is tipped to pass 10% this year, boosted by rising agricultural output. East Africa’s second largest economy, Tanzania, set to become a major gas producer in the near future, is likely to post GDP of around 7% in 2013. Uganda, on the fast track to becoming a major oil exporter, is set to grow by 7%. Capital Economics’ Shah tips Mozambique, set to post growth of 7% this year and 8.5% in 2014, to be one of the region’s outperformers in the coming years, as foreign capital floods into the country to fund the development of new offshore gas fields.Kenya has been perhaps the biggest surprise on the upside this year. March’s presidential election went ahead with remarkable serenity, given the terrible events of 2007 still fresh in

To see the digital version of this report, please click here.To purchase printed copies or a PDF of this report, please email gloria.balbastro@thomsonreuters.com.As the world recoiled from the financial crisis, a well-known economic weekly published a jarring front cover. The headline – “How China sees the world” – was a reaction to the post-Lehman carnage, wedded to Beijing’s active determination, in the form of a US$600bn stimulus package, to avoid a recession of its own.In the cover image, child’s-cartoon simple, a fissure ran down Wall Street. Foreclosure signs dotted the American landscape. Europe was praised faintly as the producer of Hermes and Prada handbags – and little else.But the most arresting symbolism was Africa, represented as a scattering of oil derricks and mineshafts. The message was clear. To Beijing, Africa was merely a giant natural resources warehouse, a strip of earth containing all the minerals and energy a rising superpower needs.Nor has this notion changed much since. Chinese oil and gas majors such as Sinopec and CNPC continue to gobble up energy reserves from Ghana to Mozambique. Beijing usually arrives armed with funding and its own Mandarin-speaking construction crews, who build rail lines and highways linking copper mines and oil fields to the coast. Some even build new ports, allowing supertankers to ship the ore and oil home.Plus China doesn’t peck-and-pester the way the West does, tying development capital to transparency and human rights. The latter is important, but African leaders tend, understandably, to resent being lectured before being handed their pocket money.By contrast, Hu Jintao, the former Chinese president and a regular visitor to the continent, announced a US$20bn African investment package in July 2012 at the opening of the Forum on China-Africa Cooperation in Beijing. Hu pointedly reiterated a “non-judgemental” approach to business, noting that China “wholeheartedly and sincerely supports African countries to choose their own development path”. He also decried the “practices of the big bullying the small”.Some Africans have grown weary and resentful of their increasingly unbalanced relationship with yet another powerful, resource-hungry nation. Chinese manufacturers, generously subsidised by the Chinese state, flood local markets with low-cost produce. African manufacturers, disorganised and lacking government support, cannot compete, forcing many out of business. In March 2013, the respected Nigerian central bank chief Lamidu Sanusi spoke for many when he described China’s activities in Africa as akin to “colonialism”.Accelerating investmentYet such concerns have not slowed the pace of inward Chinese investment – quite the opposite.“We don’t think China’s investment in Africa will slow,” said chief ANZ China economist Li-gang Liu. “To the contrary, investment will only increase because the African markets have become more important to China.”Benoit Anne, head of emerging market strategy at Societe Generale, said that China is very clearly “going to stay committed to investing in Africa” in the long term.According to the US Congressional Research Service, Sino-African trade in 2011, the latest annual figures, was worth US$127.3bn, up from just US$8.9bn in 2000. Two development lenders, China Import-Export Bank (Chexim) and China Development Bank have become key lenders in Africa to both Chinese and African corporates. Chexim alone has pledged to channel US$20bn into Africa in the three years to end-2015.Ripe for developmentLook deeper and a more nuanced relationship reveals itself, one in which parity between China and Africa, two of the ancient world’s great traders, is closer than you think.For one thing, Chinese investment across Africa is becoming increasingly diverse. Beijing will import African copper and coal for decades to come, certainly until its urbanisation drive runs its course. But some of the more eye-catching deals in recent months have come in sectors far rem

To see the digital version of this report, please click here.To purchase printed copies or a PDF of this report, please email gloria.balbastro@thomsonreuters.com.Until recently South Africa was the economic powerhouse of the region. Only a decade ago it boasted 40% of the GDP of the 48 countries that make up Sub-Saharan Africa (SSA). Having shaken off apartheid in 1994, and with the totemic Nelson Mandela at the helm, it was a template of how things should be done.As if in echo of concerns about Nelson Mandela’s health, the economic news from South Africa has been less cheery too. While much of SSA has seen GDP grow at more than 6% a year, South Africa’s has been a more modest 2%.Output has been declining: over the past five years gold production has fallen 21%, according to the Chamber of Mines of South Africa. Earlier in the year, an intensifying rivalry between the National Union of Mineworkers and the Association of Mineworkers and Construction Union left more than 60 people dead and caused concerns among foreign investors. Gill Marcus, governor of the central bank, on 19 September admitted that growth this year had been “overshadowed by protracted work stoppages”.South Africa’s credit rating has also taken a knock, with downgrades to Triple B from the three major agencies.“Subdued growth, coupled with rising corruption and worsening government effectiveness, have constrained the government’s ability to improve living standards, reduce the 25.5% unemployment rate and redress historical inequalities as rapidly as the population demands,” Fitch said in a statement.Hitting hardThe prospect of an end to quantitative easing in the US has also hit South Africa hard. The rand-US dollar exchange rate, which stood at 8.17 in August last year, passed 10 on August 19 and hit a four year high of 10.50 on August 28, according to Reuters. It has weakened by a weighty 17% this year. Even though there was a pick up after the Federal Reserve’s decision to maintain its bond-buying programme towards the end of September, the rand is still 15% down against the dollar this year, according to Reuters. On February 5, the South Africa 5.875% May 2022s yielded 3.537%, or mid-swaps plus 153bp. At the end of August they had risen to 5.266%, or mid-swaps plus 238.55bp, according to TradeWeb.This has all kicked into touch what was looking like a record year for South African debt. Both the domestic corporate bond market and the muni market had been beacons of optimism amid the gloom.In the first quarter of the year R5.65bn (US$570m) was raised by companies in the corporate bond market, matching the total for the last six months of 2012, according to Standard Bank. “At that stage we thought we were going to see record issuance this year,” said Megan McDonald, head of debt primary markets at Standard Bank. “Corporate debt was the star of 2012, and we thought it was going to be same again.”Full-year expectations have had to be tempered dramatically in light of macroeconomic challenges. In early July the IMF cut South Africa’s economic growth forecast to 2% for 2013 down from the 2.8% it had predicted in April. Meanwhile, inflation is creeping up: the Reserve Bank of South Africa had already raised CPI expectations to average 5.9% this year, up from an earlier estimate of 5.3%. Then in July it hit 6.3%, breaching the central bank’s 6% upper target for the first time in 15 months.Those economic troubles have caused considerable reassessment of expected corporate debt issuance. In July, R114bn was still seen as achievable this year. This was shy of last year’s record-breaking R123.8bn, but still considerably higher than 2011’s R86.3bn, according to Rand Merchant Bank. Now all bets are off and bankers vie to see how low they can pitch expectations.At the end August, it emerged that year-to-date foreigners had invested only R31.6bn in portfolio purchases for South African corporate debt, compared with R66.5bn in the same period last year, according to Citigro

To see the digital version of this report, please click here.To purchase printed copies or a PDF of this report, please email gloria.balbastro@thomsonreuters.com.Africa’s need for infrastructure investment is no secret. With the possible exception of South Africa, there is a widespread need for essential services as well as more sophisticated shipping, rail and port facilities and telecoms. Indeed, the variety and complexity of what is required is often mind-blowing.It is only within the past decade that capital, previously geared toward aid programmes, has started flowing more regularly into project and trade finance.Africa project finance volumes rose from US$12.8bn in 2010 to nearly US$20bn in 2012 before slumping, in the current year to the end of August, to just shy of US$7bn.Activity remains unbalanced, with 16% of all project finance absorbed in 2012 by South Africa, which consistently out-performs the continent. And while some projects have proven successful – South Africa’s Renewable Energy Independent Power Producers Program in May closed the second of five so-called “actions” – even here, investors have proven reluctant to stump up funding for long-lifecycle projects.To be fair, there are good reasons for that reluctance. “With the foreign currency risk inherent across many African economies and a history of volatility, both economic and political, the liquidity curve has been particularly hard to predict,” said David Renwick at Barclays Africa (formerly Absa Capital).In recent years, however, there have been signs of change. Suppressed western growth, growing familiarity with African sovereign debt, and an investor-base hungry for yield, are helping to boost appetite for project finance.Risk, while never a stranger in Africa, has been mitigated in many projects by finance from sovereigns and development finance institutions. Examples include the construction of the Henrie Konan toll bridge in Cote D’Ivoire, and the ongoing privatisation of Nigeria’s state-owned power plants. The Cote D’Ivoire authorities offered risk guarantees over the toll bridge, with the World Bank Multilateral Investment Guarantee Agency providing partial risk guarantees over both projects.Much of the finance passes through, or emanates from, South Africa and Nigeria. Both countries boast strong institutional investor bases, robust banking systems, and deep capital markets; each has a head-start on regional peers thanks to their ability to match long-term assets with liabilities, making infrastructure finance deals more viable.Elsewhere in Africa, more innovative structures or solutions may be needed. A report by Moody’s into the risks surrounding the expansion of Mozambique’s Offshore Area 1 LNG project, for example, highlighted political risk in the shape of a forthcoming election, and total costs estimated at US$13bn–$16bn.Then there are the recent energy finds off the coast of eastern Africa. Countries along the seaboard, keen to find ways to finance and develop offshore drilling platforms, develop refining installations, and boost infrastructure capacity, might look to replicate multi-billion dollar liquefied natural gas facilities recently completed in the Gulf.“This has not been seen in Africa but might be an option,” said Konrad Reuss, managing director for South Africa and Sub-Saharan Africa at ratings agency Standard & Poor’s. “The offtaker is offshore and can capture the offshore receivables. In this case the risk is in getting the gas out of the ground but some of the sovereign risk is reduced.”Steady flowSuch mammoth projects are helping ensure a steady flow of finance for essential infrastructure. Institutions ranging from the European Investment Bank to the Export-Import Bank of China have both shown interest in the Aysha I Wind Farm in Ethiopia, providing skittish investors with additional comfort.The African Development Bank and the Africa Finance Corporation have provided funding for power generation in Nigeria, financed

To see the digital version of this report, please click here.To purchase printed copies or a PDF of this report, please email gloria.balbastro@thomsonreuters.com.Investors are always looking for something shiny and new, usually an asset class where rewards are bigger and ultimately risk is too. In recent years, quantitative easing measures led by the Fed and pursued with vigour by leading central banks, convinced institutional investors to channel capital into some thoroughly shadowy places.Emerging markets profited across the board, but no cluster of nations benefited more from the Fed’s largesse than Sub-Saharan Africa, a region containing a few rising economic stars, and a lot of troubled or pariah states. Yet the money sloshed in, from hedge funds and mutual funds and endowments.For a while, the main issue was not demand but supply. Christopher Palmer, head of global emerging markets at Gartmore Investment Management in London, said the main challenge across SSA was an “awful lot of money trying to find its way into a very small keyhole of investable shares and markets”.That imbalance has been catnip to African nations dishing up sovereign bonds. Nigeria, South Africa and Ghana kept investment bankers busy in London and New York. Even tiny Rwanda joined the game. The central African state, failed and war torn two decades ago, finalised its debut sovereign bond in April 2013, raising US$400m. According to Thomson Reuters data, SSA sovereign debt sales raised US$5.4bn in 2011, US$6.9bn in 2012, and US$4.2bn in the current year to September 12, despite a summer slump that saw global funds flee emerging market securities.  Nor was this mere wilfull optimism. In most cases global investors were responding to the continent’s first protracted economic boom in nearly half a century, thanks to huge inflows of infrastructure and portfolio investment from China. Suddenly, there seemed no limit to Africa’s potential.That changed on May 22, when Fed chair Ben Bernanke pledged to start scaling back debt purchases by the US government, signalling the beginning of the end of the QE era. The great taper caper was called off, albeit briefly, on September 18, when the Federal Open Market Committee surprised everyone, opting to delay a decision on QE, likely to December.Yet the Fed’s May announcement was enough to roil markets across the emerging world in general, and Sub-Saharan Africa in particular. Two interlinked factors will now affect the region in the year ahead: yield and the demand for new issuance.Through most of the first two quarters of 2013, Africa was a hot destination for yield-hungry investors. Bernanke’s words changed that. Some of the worst-hit bonds were those issued over the past 12 months by SSA governments. Ten-year eurobonds issued by Nigeria, the region’s second-largest debt issuer, started the year with a yield of 4.01% but topped out at 6.24% in late June. Senegal’s 10-year bonds spiked to 8.45% on June 25, nearly 200bp above January 1 levels.The same happened with Cote d’Ivoire’s 20-year Eurobonds and super-steady Namibia’s 10-year Eurobonds. Yields, said Shilan Shah, Africa economist at London based Capital Economics, rose fastest in countries that “consistently run large fiscal debts”. Key transgressors include Ghana, Zambia and Rwanda.Fork in the roadSSA debt could now go one of two ways. Issuance could fall off sharply in all countries bar a few investor darlings. Or investors could breathe for a minute, rationalise the situation, mull over the Fed’s September surprise, and remind themselves that yields in the US and Europe are likely to inch up only very gradually.At least some investors appear willing to take the path of greater resistance. Yields on SSA debt have inched down since hitting year-highs on June 25, despite a smaller, secondary yield spike in August.And issuance continues. Nigeria sold US$1bn in 10-year bonds, priced to yield at 6.375%, in the direct wake of the Fed’s announcement. In late July, G

To see the digital version of this report, please click here.To purchase printed copies or a PDF of this report, please email gloria.balbastro@thomsonreuters.com.Africa’s debt markets have had a tumultuous year. Despite misgivings by some investors, notably in May in the wake of the US Federal Reserve’s first indications that it would soon reduce purchases of US Treasuries, bond sales have held up well throughout the year. Appetite for riskier securities among many emerging market investors remains strong.Sub-Saharan African governments issued US$4.2bn in sovereign debt in the current year to September 12, up from US$3.6bn in the same period a year ago, according to Thomson Reuters data. That African states have managed to sell debt in a tough market will merely have burnished the continent’s image in the minds of many investors.“It used to be seen as a post-colonial economic tragedy, now the world is catching up to its true fundamental value,” said Nicholas Samara, vice president, CEEMEA DCM at Citigroup.Nor have debt sales been limited to big countries or good times. South Africa sold US$2bn worth of 12-year bonds in the days leading up to the Federal Open Market Committee’s September 18 meeting. The Fed ultimately opted to delay the widely anticipated taper, but the move raised crucial funds when they were available and showed appetite remained despite huge fund outflows and the slump in the rand since May.Nigeria, for its part, sold US$1bn worth of 10-year bonds in the direct wake of the Fed’s May announcement, when investors were fleeing anything with the emerging market taint. The year has also seen some smaller states, economically and geographically, take centre stage. Rwanda, notably, launched its debut sovereign bond in April, raising US$400m.It has not all gone swimmingly. Following the Fed’s meeting in May, the spread of emerging market debt over US Treasuries widened. For a few months, emerging market debt looked a troubled asset class. In June alone, US$18.1bn fled emerging market debt funds, followed by net outflows of US$7bn in July. India saw US$5.6bn in foreign institutional investor capital exit debt securities in June, a record.For investors over the European summer, September 2012 seemed a long time away. A year ago, Zambia’s debut bond, based on robust global commodity prices, led the continent back to the international debt markets. During its roadshow, the IMF tipped Zambian GDP to grow by 7.7%, fuelled by rising copper and agricultural production.The country priced US$750m worth of 10-year notes on orders of US$12bn with a coupon of 5.375%, comfortably inside the 6% coupon that bankers had predicted.Scarcity valueDemand continued to rise into 2013, driven, said John Wright on the European syndicate team at Barclays, by “a combination of emerging market investor appetite for genuine growth potential and the rarity of the offerings”.For the first five months of 2013, there appeared to be little let-up in the story. Rwanda’s market entrance was followed by Nigeria’s surprise May placement, where about 90% of the sale went to asset managers and fund managers, said Maryam Khosrowshahi, head of CEEMEA public sector origination at Deutsche Bank. That was followed in July by the first Ghanaian sale in six years, the West African nation issuing US$750m worth of 10-year paper with a yield of 7.875%, with Barclays and Citigroup underwriting the sale.Syndicate bankers are under no illusion why these deals were so successful. The attraction of SSA debt was partly rooted in investors’ desire for yield, which averaged 4.28% across the asset class for the past 12 months to end-May 2013, against 3.43% for Asian debt and 1.75% for 10-year US Treasuries.Use of proceedsAnd it isn’t like investors are blindly chasing yield, governance has clearly improved. “Investors have warmed to the transparency of deals,” said Megan McDonald, head of debt primary markets at Standard Bank. “Investors don’t like sovereigns borrowing a bi