Angolan Eurobond Yield May Dwarf the Nation on Oil Boost

Daily Independent (Lagos)

Adeola Yusuf

25 April 2011

Lagos — Angola’s planned $500 million sale of Eurobonds may carry a yield similar to Nigeria ‘s dollar debt as oil prices boost revenue for Africa ‘s second-biggest producer, according to Standard Bank Group Ltd.

The southern African nation intends to sell its debut dollar bond in September, Finance Minister Carlos Alberto Lopes said yesterday in Luanda . Angola is rated B1 at Moody’s Investors Service and B+ at both Standard & Poor’s and Fitch Ratings, the fourth-highest junk rating at all three companies.

The debt’s price may be similar to that of Nigeria’s $500 million dollar bond, its first international notes, when issued Jan. 21 at a yield of 7 percent, Samir Gadio, a London-based emerging-market strategist at Standard Bank, wrote in reply to e-mailed questions.

“The lack of transparency and institutional bottlenecks in Angola versus Nigeria could weigh negatively on the yield metrics, but this should be offset by fiscal consolidation,” higher oil prices and rebound in foreign reserves, he wrote.

Angola’s foreign reserves climbed to $18.2 billion at the end of March compared with $17.7 billion in December, according to government data, boosted by an increase in the price of oil, which is trading within $1 of the highest level since September 2008. The country derives 80 percent of income from oil exports.

The yield on the 6.75 percent notes of Nigeria , the continent’s biggest producer of crude, was 6.27 percent at 10:22 a.m. in Lagos . Africa’s most populous country has the same rating as Angola at S&P and is one step higher at BB- at Fitch.

Angola had planned to sell as much as $4 billion of international bonds to help pay for government expenditure after the decline in the oil price from its July 2008 record crimped state revenue. In May, it said it would instead sell as much as $2 billion of government bonds locally.

The nation, which is rebuilding infrastructure ravaged by a 27-year civil war that ended in 2002, paid $2.2 billion of its domestic debt as of January, mainly to Portuguese and Brazilian building companies, Lopes said yesterday. Another $2.5 billion is outstanding, he said. The government has been in arrears on payments for work executed by Brazil ‘s Odebrecht SA and Portugal ‘s Grupo Soares da Costa SGPS SA.

“Investors will be discriminating as Angola, even without challenges like Nigeria’s, still has fiscal issues that are cause for concern,” Razia Khan, head of Africa economic research at Standard Chartered Plc in London, said by phone today. “There is insufficient transparency in Angola even as the Finance Ministry is trying to improve disclosure. All of that would have a bearing on the rating.”

Nigeria’s foreign-exchange reserves plunged by almost $10 billion to $33.1 billion in the year through Nov. 29 as the central bank propped up the currency and the government withdrew oil savings from its excess crude account, a windfall saved when the price of crude goes above the benchmark used for the country’s budget, before elections being held this month. Reserves increased to $33.7 billion by April 19, according to the Central Bank of Nigeria ‘s website.

Angola ranks 168th on Transparency International’s Corruption Perceptions Index for 2010, the 10th-lowest out of 178 nations.

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