How to handle the debt crisis and save African Eurobonds

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African governments have increasing difficulties to service their debt. There are three different types of debt to consider: domestic debt, loans granted by foreign governments, multilateral financial institutions and commercial banks as well as African Eurobonds issued by African governments with the support of mainly US investment banks.

In the past years, many governments were fighting hard to get access to international bond markets. By mid-2022, there were USD 140 billion of outstanding Eurobonds issued by 20 African countries. This means that the level of public debt in USD or EUR terms is still relatively low compared to many other regions of the world.

The international community should quickly address the debt issue. For sure, most African governments will be able to muddle through for a year or two in the hope that global challenges will ease. In this scenario, markets re-open in time for a wall of African Eurobonds to be refinanced in 2024 and 2025. But this will not work if global interest rates remain high and the market window shut. In this case, many African countries will not be able to refinance their debt, and defaults will follow.

No one knows which of these two scenarios will occur. Therefore, the international community should use the time to prevent a systemic debt crisis and put in place a financial rescue plan. This time representatives of the subscribers of African Eurobonds should be involved in the negotiations from the very beginning. Then, and only then, is there a chance of keeping African Eurobonds marketable beyond this crisis.


A new takeover wave in the mining sector?

The mining sector might face a wave of takeovers, and the African mining sector might be in the middle of it. Last week, the South African mining company Sibanye Stillwater (ISIN: ZAE000259701) submitted an unsolicited takeover bid for the Australian zinc miner New Century Resources (ISIN: AU000000NCZ9). Sibanye proposes AUD 1.10 (EUR 0.71) a share which values New Century at AUD 144.1 million (EUR 92.4 million). On 21 February when the offer was announced, New Century shares were traded AUD 0.77 which gave the bid a 43% premium. Sibanye Stillwater already owns 19.9% of New Century and wants to buy another 10.92%

New Century shares lost 71.8% of their value between mid of January 2022 and the day before Sibanye announced its bid. And just the day before its offer, Sibanye also published disappointing results: Annual profit is down 51% due among others to the severe wage strike that was hitting South African mines during the second quarter of 2022.

Sibanye’s bid is just the latest example of some even more spectacular bids in the mining sector. US gold producer Newmont (ISIN: US6516391066) recently proposed USD 17 billion for taking over of the Australian company Newcrest Mining (ISIN: AU000000NCM7). The Canadian company Teck Resources (ISIN: CA8787422044) just split its metals and coals operations, probably to attract the attention of some of the big mining companies. In April, the shareholders of BHP (ISIN: AU000000BHP4) will decide on the proposed acquisition of copper and gold mining group OZ Minerals (ISIN: AU000000OZL8).

As the mining sector is quite capital-intensive, there will be certainly more takeovers to come.


Analysts divided about Sasol’s prospective

This was a hard blow for the shareholders of the South African oil company Sasol (ISIN: ZAE000006896). As the revenues were up 9.9% to ZAR 152 billion (EUR 7.9 billion), the share price was down 11% last week to ZAR 271 (EUR 14.02). However, results were respectable: The announced ZAR 62.34 earnings per share were roughly in line with the analysts’ forecasts.

The share price certainly suffers from the fact that analysts are currently very divided on the prospects of the share. The most optimistic sets his price target at ZAR 550, the most pessimistic at ZAR 275. What can be said for sure is that sales will probably slow and that the revenue will decline this year.


Investors should be cautious in regard with Sanlam Kenya

The insurance company Sanlam Kenya (ISIN: KE0000000414) is this month among the best-performing shares on the Nairobi Securities Exchange (NSE). Last week, the share price went up by 9.8% to KES 8.98 (EUR 0.067). However, investors should remain cautious: The stock is still down 6.3% this year, and the price movements are quite erratic: On Thursday, the share price was up 7.7% for 200 traded shares. But the day before, the share price was down 7.1% for 2900 exchanged shares. And so, it goes for several days: One day, the share is up, the next it is down, and the trading volumes vary too much in our view.

The share is still too speculative. Sanlam still has a negative income: In 2021, Sanlam suffered from a loss of KES 401 million (EUR 3 million) after a KES 117 million (EUR 875,000) loss the year before. We are waiting for the 2022 results for making up our mind.


Christian Hiller von Gaertringen

Editor-in-Chief, Capital News Africa