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Strong greenback unlikely to affect Eurobond

Ndangi Katoma

As the Rand continues on its downward spiral, The Economist asked whether Namibia will be able to meet her Eurobond obligations due in 2021.

It appears so, according to central bank spokesperson Ndangi Katoma who explained the risks and liabilities of Namibia’s first Eurobond.
According to Katoma, Namibia’s ability to meet its debt obligation in 2021 is carefully managed through a carefully constructed debt management policy. “The Eurobond comes with various risks as is the case with any type of borrowing. Since it is denominated in US Dollar, the Eurobond is particularly exposed to exchange rate risk,” he said.
Katoma explained that since Namibia borrows 80% of her debt locally and 20% foreign, the composition of debt is meant to serve as a natural hedge against volatility in Namibia’s exchange rate because only a minor portion of sovereign debt is in foreign currency and thus exposed to exchange rate depreciation. He added that a portion of Namibia’s foreign reserves is invested in foreign currency equivalent to the Eurobond.
The Oversees Development Institute (ODI) released a report on African governments’ ability to repay their debt obligations, a situation bound to see investors lose as much as US$10 billion.
“Today’s economic environment in sub-Saharan Africa is similar to the boom that preceded the bust in the debt crises in Africa and Asia in the 1990s when western governments and banks wrote off billions of pounds of debt,” said Judith Tyson, an ODI research fellow.
Sub-Saharan-Africa issued a record US$4.6 billion in 2013 in sovereign bonds. The insatiable desire for Eurobonds gained momentum in 2013 probing the Oversees Development Institute to ask in January this year whether; sub-Saharan African countries made the right choice in issuing sovereign Eurobonds and when should they issue more bonds? The ODI also considered what can issuing countries and other countries internationally do to make sure that sovereign bonds work for development?
The immediate concern for James Cumming, Head of Research at Simonis Storm Securities is government’s ability to meet the coupon payments which are denominated in Euro. He said, “I would think that these would be covered by Euro’s we receive from exports to Europe,” citing Namibia’s copper, grape, and beef exports amongst others. He added, “Most of our imports come from South Africa, therefore our Rand reserves are more critical to manage.”
As these questions linger on, Namibia appears to have back-peddled on its intention to issue another Eurobond according to recent media reports. Said Katoma on the issue of another Eurobond “There are currently no immediate plans to access the Eurobond market and issue another bond. Government borrowing of any nature is subject to the government cash flow requirements and prevailing market conditions.”
The Ministry of Finance accessed the Eurobond in the 2011/12 financial year to fund the deficit.

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