Over the previous 20 years, African nations have more and more turned to worldwide capital markets to satisfy their growth financing wants. For instance, Kenya and Benin raised a mixed US$2.5 billion via bond issuances throughout the first half of 2025. Proceeds have been used to repay maturing bonds. This implies new bonds, with unfavourable phrases, are being issued to pay earlier lenders.
But African bonds are considerably mispriced, leading to excessively excessive yields that aren’t justified by fundamentals – primarily based on financial, fiscal and institutional strengths. Mispricing happens when a rustic has excessive financial progress, steady establishments that help authorities coverage implementation, rule of regulation and accountability, but its bonds commerce at larger yields than these of its friends. In different phrases, there shall be each purpose for buyers to belief that the nation will repay what it owes, however they nonetheless count on the next return. That is taking place due to ignorance and biases perpetuated by international entities which might be facilitating bond sells in Africa.
Côte d’Ivoire and Senegal have robust progress (5% to six.5%), but they face excessive yields on their bonds (7.8% to eight.2%) in comparison with Namibia and Morocco with roughly 3% progress and bond curiosity of 6%.
This mispricing imposes a heavy debt servicing burden on already constrained public budgets.
On the identical time African nations face a puzzling paradox: whereas they’re paying extra for the debt they’re elevating, the demand for these bonds is far larger (oversubscribed). All bond issuances in Africa are subscribed by as a lot as over 5 instances. This has solely been frequent in Africa. It’s puzzling why governments are usually not leveraging on the excessive demand to discount for decrease rates of interest.
In my opinion, primarily based on my bond pricing modelling experience, I imagine that mispricing of Eurobonds in Africa – debt devices issued by a rustic in a forex totally different from its personal – shouldn’t be a market anomaly. It exhibits inner capability failures in African nations, structural market biases and inadequate understanding of the advanced mechanics of world debt markets.
Oversubscription of Eurobonds ought to be a supply of energy for African governments, not a missed alternative. African nations can transfer from being value takers to cost negotiators. They need to have the ability to scale back debt prices, releasing up assets for growth.
However to get there African nations want to deal with the facility imbalance within the markets.
Governments have to put money into bond pricing experience to extend their negotiating energy.
The false success sign of oversubscription
There are a number of the reason why African bonds stay mispriced at the next curiosity regardless of the oversubscriptions.
Firstly, an absence of technical experience in major bond issuance within the debt administration workplaces of nearly all of African governments. Only a few on the continent have intelligence methods for gathering info on monetary markets and formal investor relations programmes. Neither have they got in-house quantitative analysts or pricing specialists able to participating funding banks on an equal footing throughout roadshows and negotiations.
The debt administration workplaces are unable to interact confidently and critically with monetary intermediaries to problem assumptions, simulate pricing eventualities and conduct their very own comparative market evaluation.
After preliminary public presents, most governments do not interact with holders of their bonds on the secondary market. Nor do they monitor bond post-issuance efficiency. The shortage of curiosity within the secondary market has created a suggestions loop the place poor market intelligence has contributed to excessive coupons on new issuances.
Secondly, superior economies interact buyers usually via briefings, roadshows and well timed experiences. Communication by African governments is commonly advert hoc and often restricted to the interval round a brand new bond issuance.
This prevents buyers from forming knowledgeable, long-term views. It results in a default danger premium in pricing.
Thirdly, debt issuance by African governments is commonly politically pushed slightly than strategically timed. Typically this results in rushed or ill-prepared entries.
Typically it is performed when the price of debt is rising globally, near election cycles, or as a result of governments are dealing with a monetary crunch attributable to falling reserves.
Learn extra: African governments have developed a style for Eurobonds: why it is harmful
Fourth, African sovereigns typically method the Eurobond market with weak negotiating energy. They’re closely reliant on a small pool of western funding banks as technical advisors to handle the bond issuance. These banks are usually extra inclined in the direction of their very own international funding shopper networks. Their incentives are usually not aligned with attaining the bottom attainable yield for the issuers.
African issuers typically settle for the preliminary value steering from advisors and conform to excessive yields even in oversubscribed conditions. Even when demand may help a decrease yield, African issuers fail to barter pricing downwards. Issuing syndicates haven’t any incentive to push for optimum pricing for the issuer as they obtain transaction-based charges.
Learn extra: African nations aren’t borrowing an excessive amount of: they’re paying an excessive amount of for debt
The function of bond issuing syndicates is a significant factor within the mispricing. In bond issuance, a syndicate is a gaggle of economic establishments that constructions the bond, value and market (additionally recognized bookbuilding), underwrite the unsold portion of the bond, promote the bond to their buyers, and guarantee compliance and documentation. These syndicates set coupon charges larger than needed as a conservative hedge in opposition to perceived investor scepticism.
African governments have grow to be passive individuals slightly than lively price-setters. African-based bond syndicates are systematically bypassed regardless of rising regional capability and distribution networks. Bond points are additionally allotted to offshore consumers, sidelining native institutional buyers.
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Breaking the cycle of mispricing
To appropriate the systemic Eurobond mispricing and scale back debt servicing prices, African nations should undertake reforms.
First, governments ought to put money into debt administration capability.
Second, they have to actively monitor secondary market buying and selling to determine alternatives similar to bond buybacks and exchanges that would enhance the debt profile. Actual-time analytics on bond buying and selling efficiency ought to inform future issuance phrases and investor communication methods.
Third, governments should construct institutional routines for submitting information, and proactively interact buyers and ranking businesses. It will problem and affect danger assumptions. Buyers want constant assurances, particularly on the power to simply exit positions.
Fourth, African nations want to keep up and monitor up-to-date benchmarks from friends with comparable pricing information. With out correct comparisons, it’s troublesome to know whether or not the proposed bond pricing by syndicates is truthful and correct. They have to cease solely counting on what funding banks recommends.
Lastly, African governments ought to contain a minimum of one African-based syndicate member, prioritise allocation to African institutional buyers and promote regional preparations with worldwide banks to make sure data switch and equitable participation.
Misheck in TazeSubmit Doctoral Researcher, Graduate Faculty of Enterprise (GSB), College of Cape City
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