Gabon has issued a private bond at a record yield of 12.7%, raising $520 million to address debt obligations. The country faces liquidity challenges and limited options due to recent credit downgrades. While the pricing is tough, it allows Gabon a temporary reprieve to seek IMF support and improve its financial situation before impending redemptions.
This week, Gabon set an unwelcome milestone by pricing a private bond offering at a yield of 12.7%, marking the highest benchmark-sized bond yield for any African sovereign to date. The $570 million bond, which carries an interest rate of 9.5% and matures in February 2029, provided Gabon with $520 million in proceeds amidst significant financial limitations. This yield not only represents a record for Africa but also the steepest yield observed in emerging markets for 15 years.
A portion of the funds raised will be allocated to pay off a remaining balance of $318 million on a Eurobond that is due in June. Despite the negative perception surrounding such a high yield, Gabon’s options were severely constrained, given the country’s ongoing liquidity issues and a downgrade by rating agencies to levels of Caa2/—/CCC within the past year. Although default was not imminent, depleting cash reserves for bond repayment risked increasing already growing government payment arrears.
Bankers debated whether Gabon could have executed a public bond deal at a more favorable yield; however, their access appears limited due to prevailing public debt yields around 12% for six-year maturities. The government previously tapped local funding for a similar Eurobond in November, but liquidity remains scarce, limiting this avenue. With April elections approaching and a June maturity looming, Gabon faced a compressed timeline to address its Eurobond obligations.
Consequently, although the pricing is challenging, Gabon has successfully addressed its immediate needs, likely the only viable strategy given the circumstances. The issuer can now repay the final portion of the June bond, and the next Eurobond redemption won’t be required for three more years, reducing immediate pressure as the $570 million bond amortizes. This timeframe affords Gabon the opportunity to negotiate an IMF deal and implement policies aimed at reducing bond yields to a more manageable level.
While the 12.7% yield might signal distress to some observers, it may instead serve as a potential pathway toward improved financial stability for Gabon as it strives for sustainable solutions in its fiscal management.
In summary, Gabon’s recent private bond issuance at a 12.7% yield, the highest ever for an African sovereign, reflects challenging financial circumstances and limited options. The proceeds will support urgent bond repayments while providing a three-year respite before the next Eurobond redemption. This timeframe is crucial for Gabon to stabilize its finances through potential IMF assistance, thereby decreasing future borrowing costs and addressing liquidity concerns.
Original Source: www.globalcapital.com
