AGR Africa bond index presentation
In this sixth edition, we have tracked the AGR Africa Bond Index evolution during Q2-2020. During this period, the index has experienced a sharp rebound in terms of value and outstandings:
- The index value reached 97.5 pts against 80.7 pts in the last edition. Thus, the index recovers two-thirds of the losses recorded during Q1-2020. This development could be explained on the one hand by the impact of the new integrated lines, which represent 28% of the total outstandings, and on the other hand by a relative dissipation of risk premiums which rose sharply in the previous quarter ;
- The deposit outstanding size widened from $ 57 Bn to more than $ 82 Bn. This results from the rise in the num-ber of lines meeting the eligibility criteria of our index from 59 in Q1-2020 to 67 in Q2-2020. This evolution is mainly due to a scope effect with the integration of 9 Eurobond lines in the index and the withdrawal of one line ;
- The AGR Africa Bond Index is still represented by 6 African countries like the previous edition. Indeed, the latter is composed by Egypt, South Africa and Nigeria and which are largely representative in this benchmark. These 3 countries dominate nearly 60% of the capitalization while Ghana, Kenya and Morocco share the balance ;
- The observation of the current index breakdown by S&P rating agency shows the strong contribution of bonds B rated which monopolize 40% of AGR ABI. Furthermore, this latter is composed for 80% of residual maturities superior to 5 years.
Focus Egypt : Considerable financing needs... A great investors appetite (1/2)
On May 2020, Egypt achieved the second largest Eurobond issuance of its history after that realized in 2017 ($ 7.0 Bn).
This is an operation amounting to $ 5.0 Bn, subdivided into three tranches. The first tranche concerns $ 1.25 Bn with a 4-year maturity and a coupon rate of 5.750%. The second tranche has a 12-year maturity with a coupon rate of 7.625% for an amount of $ 1.75 Bn. The third and last tranche issued concerns an amount of $ 2.0 Bn over 30 years and offers an interest rate of 8.875%.
This is much more attractive to yield-seeking investors compared to the November 2019 issuance, which was agreed at a coupon rate of 8.150% for 40 years.
This operation was extremely well received by highly liquid investors in a context of low, and even negative bond yields in Europe. In fact, it attracted a total Demand of $ 22.0 Bn from 400 investors, i.e. an oversubscription rate of more than 4.0x the amount issued.
Impacts of the Covid-19 pandemic on the Egyptian economy are certainly out there. Despite its relative resilience with positive economic growth outlook (around 2% of GDP in 2020E), Egypt remains dependent on external shocks. These are revenues from the tourism sector (4.4% of GDP), workers remittances (9.0% of GDP) or even Suez Canal revenues (2.0% of GDP). At the same time, international gas prices have fallen sharply by more than 25% since the beginning of the current year pushing Egypt to slow down its production and suspend its exports of GLN in order to preserve its profitability.
Given the spread of the Covid-19 pandemic, the Egyptian government has implemented important health measures. These also have an economic cost such as closing borders to people and some businesses. It is obvious that these measures had a negative impact on the country's balance of payments and foreign exchange reserves. This has put pressure on the Egyptian Pound, which declined by -2.5% from EGP 15.6/$ at the end of February to EGP 16.0/$ currently.
