Senegal’s bond move could pay off

Senegal, one of Africa’s success stories, looks forward to issuing bonds to fund infrastructure development and accelerate growth that’s being driven by surging peanut and rice production. Yet, the global economic slowdown reverberates worldwide and Senegal could be no exception. Economies try to create new money through issuing the government bonds to sustain on-going development process through what is known as Quantitative Easing (QE). In times of crisis, the QE has bailed out the economies of the US, Japan, the UK and others.
Europe’s central bank began buying government bonds in March 2015 — six years after the US embarked on QE — as the region’s fragile recovery lagged the rest of the world. Locally, the Emirate of Abu Dhabi announced it has successfully issued its benchmark dual-tranche 5 and 10 years, US$ 5bn bonds. Some GCC states mull over the issuance of bonds, while others have already
issued bonds to finance development projects.
By planning to sell the bonds, the West African nation intends to raise $500 million to $1 billion through the sale of a Eurobond, sukuk or Samurai bonds to fund development projects.
“This year we will definitely have a bond,” Sall said. “The money will be used totally for infrastructure, roads and power. A little bit may be for health facilities and education,” said Senegalese President Macky Sall.
The outlook is bright for Senegal. The economy is expected to expand 6.6 percent this year, the highest in sub-Saharan Africa after Ivory Coast and Tanzania, the IMF said last month.
Since his election to the office in 2012, Sall improved transport links, power supplies, and boosted farm output by increasing the use of tractors and genetically modified seed. Senegal’s dollar-denominated bonds have returned 8.2 percent this year, compared with an average of 7.6 percent for 17 sub-Saharan African securities. Yields on the $500 million of debt due in July 2024 rose 2 basis points to 7.1 percent on Monday. The government is targeting a yield of 6 percent or less for the new bond.
Elsewhere in the continent, South Africa, the only sub-Saharan African nation to sell debt so far this year, issued a $1.25 billion Eurobond last month at a coupon of 4.875 percent. The Democratic Republic of Congo scaled back its plans to sell $1 billion of Eurobonds and instead asked multilateral lenders for direct budgetary support.
Sall’s Senegal stands a chance to double the growth rate from 2020 when gas is expected to start flowing from two fields discovered by Kosmos Energy Ltd. earlier this year. One field, which lies offshore Senegal’s northern border with Mauritania and is shared by the two nations, contains about 17 trillion cubic feet of gas and the other about 5 trillion cubic feet.
Senegal is also set to start producing oil from 2021 or 2022 from a deep-water well that’s being developed by Cairn Energy Plc.
With good governance, energy revenues would be used to diversify the economy. Sall has set up a sovereign wealth fund to ensure any windfall isn’t squandered. Through issuance of the bonds to raise funds for infrastructure projects, the Senegalese president sends a message that the global slowdown will not at all dent his development plans.