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An increasing
number of African nations and state-owned firms are expected to tap
international bond markets in the next few years, helped by investors’
hunger for emerging market debt and marking an upswing in fees for
Africa-focused banks.

The market may also
eventually see issuance by corporations in some of the larger
sub-Saharan economies outside South Africa, such as Nigeria and Angola.

South African
state-owned power utility, Eskom, and Zambia are just two expected
issuers in 2011. Angola, Tanzania, and Uganda also have dollar-bond
plans in the pipeline, while Kenya is seriously considering an issuance
if domestic yields rise, a senior Treasury official told Reuters on
Monday. Eskom has said it will tap U.S. and European bond markets as
part of a plan to raise up to $6.9 billion over the next three years,
while Zambia, Africa’s largest copper producer, has said it plans to
issue a $500 million overseas bond.

“I am convinced we
will see substantial issuance from Africa over the next two, three
years,” said Florian von Hartig, global head of debt capital markets at
South Africa’s Standard Bank.

“The sovereigns
will take the lead, but financial institutions and corporates, maybe
from Nigeria, maybe from Ghana, maybe from Angola or Kenya, will follow
suit,” he said in an interview on the sidelines of a capital markets
conference in Cape Town.

With interest rates
in the developed world hovering close to zero, investors are ploughing
into emerging market debt for higher returns. The yield on Ghana’s
10-year Eurobond maturing in 2017 is around 6 percent, while a similar
bond from Gabon is offering 5.2 percent.

Given the external
demand, issuing overseas can be a cheaper option for African
governments and corporations than their relatively small domestic debt
markets, provided they can offer a bond big enough to whet foreign
appetite.

Ghana’s Eurobond
was issued with a coupon of 8.5 percent, compared with the 13.95
percent on a three-year note issued locally the same year.

Big inflows

As of last month,
emerging market bond funds had attracted more than $41 billion this
year, according to data from research firm, EPFR Global, and more
investors are now looking beyond flagship emerging market issuers, such
as Mexico or Turkey.

Demand for African
overseas bonds will continue to hinge on the creditworthiness of
issuers, availability of easy money globally, and the level of rates
elsewhere, said Razia Khan, head of Africa research at Standard
Chartered in London.

She reckons the long-term outlook for issuances is strong, even with worries about global risk appetite.

“That window for
African issuance might close rather dramatically depending on what
happens with global risk appetite, of course, but in the longer term,
with African economies making real progress, and emerging in their own
right, expect to see much more issuance regardless,” Ms. Khan said.

In sub-Saharan
Africa, overseas bond issuance remains the domain of governments,
state-owned enterprises, and a handful of corporations in South Africa,
the continent’s largest economy and home to some of its biggest
companies.

Naspers, Africa’s
largest media group and an active acquirer of media and Internet firms
in emerging markets, issued a seven-year, $700 million bond with a
6.375 percent coupon in July. The company said some of the funding
would go toward acquisitions.

More South African
companies are likely to issue overseas debt to fund foreign ventures,
reckons Prasanna Nana, head of debt capital markets for South Africa at
Absa Capital, the investment banking arm of South Africa’s Absa.

“At the moment, the
large corporates can borrow at very good rates in rands in South
Africa, and the rand is what most of them need, so there is no real
push to go offshore. But I think once M&A activity starts picking
up, we might see more offshore activity,” Mr. Nana said.

Standard Bank’s von
Hartig is betting that corporations outside South Africa will begin to
tap overseas markets, although a necessary minimum issuance of
$250-$300 million will deter all but the biggest few firms in the
region. Some of the largest Nigerian and Angolan banks could be likely
candidates, he said.

Any increase in
bond issuance will be welcomed by international banks, which are
pushing to increase their fees and commissions as a weak global economy
continues to squeeze revenues.

Sub-Saharan debt
issuance totalled $5.6 billion in the first nine months of 2010, down
30 percent from the same period a year earlier, but still well above
the $1.6 billion in the first nine months of 2008, according to Thomson
Reuters data.

Deutsche Bank took the top spot for bookrunner of debt capital markets deals in the region, followed closely by Standard Bank.

Barclays Capital,
the investment banking arm of Barclays, which owns a controlling stake
in South Africa’s Absa, took the top spot globally for debt bookrunner.
In Sub-Saharan Africa, it came in at fifth place.

Third place was occupied by Japan’s Daiwa Securities, while Goldman Sachs took fourth.