Angola will decide in July whether to issue a global bond,
the proceeds of which would be used to reduce its deficit
rather than to finance infrastructure, its debt management head
Carlos Panzo, national director for macroeconomic
management in the Angolan Ministry for Economic Coordination,
told Emerging Markets that the proceeds of a
prospective bond issue would be used to shore up the public
purse, rather than to fund public investment programmes, since
the government already dipped into its foreign exchange
reserves in the bull run to pay for public projects.
There would be capacity constraints if we decided to
finance more projects, so the bond will be specifically
targeted for balance of payment support, he said in a
Panzo said the timing of the international bond issue would
be fixed following the July budget. We are in a
wait-and-see mode, and we will only know once the 2010-11
budget is finalized in July if and when we will come to the
markets, he said.
Angola was last week rated B+ from Standard &
Poors and Fitch Ratings, and B1 by Moodys. The
credit ratings pave the way for an international bond sale.
The national budget swung from a large surplus in 2008
thanks to high oil prices to a 15% deficit in
2009 and a projected 2.6% budget gap in the 2010 fiscal year,
according to Fitch Ratings. Angola has drawn down $514.5
million of its $1.3 billion IMF stand-by arrangement, agreed in
Oil price volatility highlights the need for improved
budgetary management, said Richard Fox, director of Middle
Eastern and African sovereign ratings at Fitch.
I would be concerned if Angola issues $4 billion
a benchmark the government said it was considering last
year but $1 billion or so it would not affect the
rating, due to their low public debt burden.
Angolas external debt-to-gross domestic product ratio
was 22.8% in 2009. In Angolas bailout package with the
IMF, the global policy lender pencilled in a prospective bond
issue of up to $2 billion in the 2010 fiscal year, said
Economy minister Manuel Nunes Junior said in an April 26
letter to the IMF that our debt management capacity is
yet to be at par with those of many other emerging market
countries, but added that the country was beefing up its
debt management capacity.
Panzo said that Angola was becoming more fiscally
transparent and had adequate debt management mechanisms in
place to handle an international bond this year.
Although not ruling out the potential for market
volatility in the eurozone that would hamper the
prospects of a prospective Angolan bond sale, Panzo said:
Increased enthusiasm for the country, and investor
appetite for emerging market risk, gives us confidence that any
debt sale would be a success.
Stuart Culverhouse, head of research at boutique investment
firm Exotix, reckons a prospective $1 billion issue would pay a
1-1.5% premium to Ghanas $740 million benchmark that
currently yields 7.4%. The perception of risk in Angola
is higher, due to its oil dependency and the current IMF
programme, he said.