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Namibia is Africa’s last Eurobond issuer bucking junk status

Namibia is Africa’s last Eurobond issuer bucking junk status

Following South Africa’s foreign and local currency ratings downgrade to junk status by Fitch last week and further downgrades speculated by Moody’s and S&P, Namibia is now Africa’s only remaining investment grade Eurobond issuer.

Bloomberg reports that with US$1.25 billion of bonds, equivalent to 10 % of GDP, Namibia also surpassed Botswana and Mauritius who have investment-level ratings but with no Eurobonds.

African economies have recently gone from being among the most buoyant worldwide to being suppressed by falling commodity prices, rising debt levels and political uncertainty.

Namibia’s newly acquired prestige is mostly due to international investors opting for certain, although nominally tradeable funds that investors pick over South African options due to its junk status and a mandate to pick only investement grade bonds.

The second Eurobond issued by the Namibian Government made available additional funding of US$750 million but very little of this was used to finance the government’s regular operations. The largest chunk has been allocated to foreign reserves. This is the reason for the substantial spike in Namibian foreign reserves in November 2015.

After the injection, international reserves rose steadily in 2016 and remained sufficient to sustain the one-to one currency peg with the South African Rand. During 2016 the level of international reserves increased by 4.8% to N$24.7 billion at the end of 2016 from N$23.6 billion a year earlier.

The latest value is 5.6 times the value of currency in circulation, supporting the reserve adequacy ratio.

Namibia’s stock of international reserves is sufficient for a 2.9 month import cover. According to the Bank of Namibia Governor, Iipumbu Shiimi, the bank has approached local asset managers in a bid to increase its stock of foreign reserves. “We have approached a number of asset managers in order for them to sell their foreign assets with local ones.”

Currently, the Government Institutions Pension Fund is the only confirmed investor to have entered a so-called asset swap deal.

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