AFRICA INVESTMENT-Third time may be lucky for Angola Eurobond debut

Thu Apr 4, 2013 10:22am EDT

* Oil-rich Angola to raise $1 billion in Eurobonds this year

* Demand seen strong due to strong economy, demand for risk

* Political risk limited, but transparency concerns may weigh

By Shrikesh Laxmidas

LISBON, April 4 (Reuters) - Thwarted by global financial crisis in 2009 and debt arrears in 2011 - the chance of Angola launching a debut Eurobond are better third time round thanks to its booming oil economy and foreign hunger for African debt.

"For foreign investors it (a Eurobond) would be a way to play the Africa story, which is very positive, and specifically Angola, a very strong growth performer," said Victor Lopes, economist for Sub-Saharan Africa at Standard Chartered.

Angola, which is Africa's No.2 oil producer after Nigeria, plans to raise $1 billion through a Eurobond issue this year.

Angola's economy expanded 7.4 percent in 2012, thanks to a recovery in oil output after technical problems, and the government forecasts growth of 7.1 percent this year.

When Angola raised $1 billion last year in a private placement of seven-year paper via a Russian bank, market sources said the deal was opaque but added that it was well-subscribed.

"It was a way of introducing themselves to investors. They're in a better position after that to do a plain vanilla Eurobond," said Stephen Charangwa, fixed income portfolio manager at Silk Invest in London.

Angola's plans are also likely to have been encouraged by a successful sale by neighbour Zambia in September.

Zambia's debut $750 million Eurobond attracted feverish demand - oversubscribed 15 times and sold at a yield of 5.625 percent, underscoring investors' appetite for high-yielding African assets.

"Maybe this will be a good time for Angola, especially after Zambia's successful bond issue showed clearly that there is strong demand for African government bonds," Standard Chartered's Lopes said.

Other African countries are also seizing the opportunity. Kenya plans to sell a debut $1 billion Eurobond in September, Nigeria is planning its second issuance and Ghana is mulling re-financing one bond and issuing another.

Lopes added that Angola has strong creditworthiness indicators, including a better credit rating than Zambia.

NOT PRESSED FOR FUNDS

The medium-term outlook is also positive as the country aims to ramp up crude output to 2 million barrels per day (mbpd) in 2015 from 1.75 mbpd last year.

That presents a stark contrast to 2009, when Angola cancelled plans to issue $4 billion in Eurobonds after oil prices slumped, causing a sharp economic slowdown. New plans in 2011 were also shelved after the government had to pay off debt arrears of $7.5 billion to overseas firms.

Now, even with reserves at record levels of around $31 billion and positive scenarios for oil output and prices, Angola still has reasons to seek financing overseas.

"I don't think they are really pressed for money, but they might want to diversify their financing options or fund long-term infrastructure projects and not necessarily from their reserves," said Silk Invest's Charangwa.

Angola is recovering from a 27-year civil war that ended in 2002 and which long-serving President Jose Eduardo dos Santos estimates caused $30 billion in infrastructure damage.

His government plans to raise spending by 26 percent this year to rebuild and help diversify the economy away from oil. The added spending will lead to a fiscal deficit equal to 3.4 percent of GDP, from a surplus of 8.7 percent in 2012.

To balance the budget, the government will issue $18 billion in domestic and foreign debt this year. Public debt is expected to reach over $39 billion this year from $33 billion in 2012.

Still, analysts said Angola's debt profile is moderate, with total debt at around 31 percent of GDP, two thirds of which is external debt, mainly bilateral loans from China.

"Angola's debt levels have dropped sharply in recent years, reducing the risk of a sovereign debt default," pan-African group Ecobank said in a report last month.

With Dos Santos elected for a new five-year term last August, political risk is seen as limited. His government's poor record on transparency is another story.

"If you look at human development indicators and corruption perception indices, Angola is still weak, which could affect investors' thinking," Standard Chartered's Lopes said.

Angola's dependence on oil is also concerning. The sector accounts for over 95 percent of exports and 45 percent of GDP.

Despite these risks, analysts said Angola's strong story means it could obtain a lower yield than in last year's private placement and even lower than the one Zambia paid.

"If Angola issues a 10-year bond, it will likely price around the 4.5 percent to 5.5 percent region," said Charangwa. (Additional reporting by Tosin Sulaiman in Johannesburg; Editing by Ed Stoddard and)

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