Ghana’s extended credit facility from the IMF expires in April 2019, but the government has said it will exit at the end of this year. Without the IMF programme, a lack of incentive for fiscal discipline raises the risk of fiscal slippages emerging in 2019, cautioned Barclays analysts. “Even with the 13.5pp reduction in the public debt ratio as a result of the GDP rebasing (the end Sep 2018 figure has been revised to 57.2% from 70.7%), public debt in nominal terms remains sizable and the impetus for consolidation has not been erased just because the GDP base is now higher.”

Ghana’s budget forecasts see the fiscal deficit widening to 4.2% of GDP from 3.7%, based on an optimistic 7.6% growth forecast for 2019. This presupposes a growth in revenues of 26% to offset a 27% increase in expenditure. Historically, the sovereign has underperformed ambitious revenue targets notes Barclays. “It is devoid of any new or major revenue generation strategies. Of this, non-oil tax revenues (74% of domestic revenue) are projected to increase by 19.1%, with benchmark oil revenues (assuming international oil prices of USD 66.8) increasing by 10.2%.”

The rebase allows a fudge of the deficit numbers whilst expanding fiscal spending, noted one EM market participant. Ghana is becoming more reliant on USD funding when it is more expensive, and at worst unavailable, he added.

Ghana 2049 bonds earlier this morning were indicated at 86.50/87.37 for a yield of 10.06% and a z-spread of 690bps on the bid side. Just two months ago, the bonds were bid at 100.375, a 8.59% yield, and a z-spread of 547bps.

The government is seeking to raise around USD 2bn from foreign markets in 2019 as it shifts away from reliance on domestic debt. But despite this, in recent weeks it has been a frequent heavy borrower in Cedi – pushing local yields north of 20%. The risk is without an improvement in EM sentiment, Ghana will fail to deliver on its promises yet again.

Other high-beta oil-producing Sub-Saharan African issuers were hit hard earlier in the week, as oil prices slid to year-to-date lows. Nigeria’s latest issues are trading heavy, the 2031s are at 98.00/98.62, and 2049s at 98.12/98.75 (9.44%/9.38), according to a trader run. Angola 48s were indicated at 95.37/95.75 (9.86%/9.76%).

Lights flicker at Eskom

Sentiment towards Eskom has faded in recent weeks, as delays in the release of its strategic plan – now expected in February (from September) and operational issues continue to dog the beleaguered South African state-owned enterprise.

Eskom is for sale everywhere, said the market participant. “[Spreads] out to 300bps in the 10-year space now, as bad news in the current market gets punished even more.”

Chairman Phakamani Hadebe told the South African Parliament’s Portfolio Committee on Public Enterprises, that Eskom’s debt was at risk of rising from ZAR 400bn (USD 28.5bn) currently to ZAR 550bn in the foreseeable future.

Eskom’s Acting Chief Financial Officer Calib Cassim told the committee that the parastatal’s inability to service its debt from its earnings was forcing it to borrow more. Eskom hopes that expenditure will stabilise over the next three years as new power plants come on stream, although backlog maintenance could hamper those efforts, Cassim was cited as saying.

For the first time in three years, Eskom warned of load shedding as its coal stockpiles fell below 20 days. On top of this, its failure to maintain capex on its ageing coal plants is coming home to roost as its energy availability factor continues to fall.

Eskom 28s are languishing at lows for the year at 95.625-mid, according to a trader run.

Rough Diamond

In the latest EM downdraft, Nigerian banks have held in well. But whether this will continue may be subject to where the oil price ends up after the recent bout of volatility. The local banks are heavily exposed to the indigenous oil & gas sector, as a report in the FT this week highlights

NPL ratios are now falling for many Nigerian banks. Most are making record profits and are therefore less reliant on the Eurobond market to roll-over upcoming maturities. Nigerian Bank Eurobonds are trading inside 10%, with better names trading with a 7% yield handle.

But the exception is Diamond Bank. Its May 2019 Eurobonds are indicated at 94.5/96.5, a yield of 21.17%/16.55%.

In late October the chairman and three non-executive directors resigned, reportedly due to a dispute with one of its largest investors – the Carlyle Group.

Ratings agencies have bemoaned the lack of progress in reducing problematic exposures and deteriorating asset quality.

“In Moody's view, the bank will face a further deterioration of its solvency that will likely undermine investor confidence and make foreign currency funding increasingly costly and difficult to access,” the agency said. This meant that the bank is reliant on “external capital support from either existing or new shareholders, or from the government, boosting its solvency and addressing its foreign currency vulnerability.”

Diamond Bank will struggle to refinance their USD 200m May 2019 bond, said an EM fund manager. “There is no way they can come [to the Eurobond market], there are no buyers for this year…if elections go well in February and sentiment towards Nigeria improves, they may find a window.” The alternative is to refinance locally but may be problematic. “Their market cap is only USD 4bn so raising USD 200m is not easy.”

Chris Haffenden Special Project Lead, Project Finance Acuris Global

Until recently Chris Haffenden was Managing Editor for Debtwire CEEEMA, covering debt capital markets across Central and Eastern Europe, CIS/Russia, Middle East and Africa.

Debtwire CEEMEA’s coverage includes loans, bonds, sovereign debt, project and Islamic finance. He is an expert in debt restructuring and a former banker, specialising in distressed debt and Emerging Markets.

His new role is Special Project Lead exploring the potential of enhanced project finance coverage for the Acuris group.

Prior to CEEMEA, he established Debtwire’s European ABS product and was former Deputy Editor of Debtwire Europe.