Institute of International Finance

Nigeria, Ghana, Other four countries account for 70% of DSSI $70bn Eurobonds

  • DSSI-eligible sovereigns owe nearly $13bn in debt service payments to external private creditors from May 1st to end-2020
  • However, only 26 of the 73 DSSI-eligible sovereigns have outstanding Eurobonds, comprising a total stock of some $70bn
  • Eurobond debt service through the end of this year amounts to $4.9bn, of which interest payments represent $3.7bn

The Institute of International Finance (IIF) stated that Nigeria, Ghana, Angola, Côte d’Ivoire, Kenya and Pakistan account for 70% of the total stock of Debt Service Suspension Initiative (DSSI) amounting to some $70 billion.

This was revealed in the Institute’s macroeconomic report.

According to IIF, upcoming debt service in 2020 exceeds $500 million in Ghana, Angola, Honduras and Nigeria.

The Institute stressed that this highlighting the need for continued market access to help manage upcoming payments.

The G20 Debt Service Suspension Initiative  aims is to provide temporary debt service relief to the world’s poorest and most fragile countries.

In the report, IIF revealed that 26 out of 73 eligible countries have outstanding Eurobonds totaling $70 billion, up from $20 billion in 2015.

The Institute explained that the countries in this category are those with weak healthcare systems and underdeveloped domestic capital markets.

Total Eurobond repayments through the rest of the year amount to $4.9 billion, of which $3.7 billion is interest and $1.2 billion principal.

According to the Institute, over $7.5 billion is due in 2021.

“Upcoming debt service in 2020 exceeds $500 million in Ghana, Angola, Honduras and Nigeria”, it stated.

MarketForces recall that due to ravaging coronavirus pandemic, countries with weak economic capacity had called on official creditors for a time-bound suspension of public sector long-term external debt repayments.

Upon request from the borrower, IIF held that the DSSI also asks private sector creditors to participate on a voluntary basis.

The proceeds are to be used for immediate liquidity needs arising from the COVID-19 pandemic, IIF explained.

“Looking across the creditor base, official creditors are owed some $18 billion in debt service payments between May 1st and end-2020.

“However, $11 billion of that amount is due to official bilateral creditors. The remaining $7 billion is owed to multilateral creditors.

“It is unclear whether much of this will be deferred, given the concerns expressed by many of these creditors about the potential impact on their ratings, IIF stated.

The DSSI countries also owe some $13 billion to private creditors through the remainder of this year, IIF stated in the review.

However, the Institute provides that the scope of private sector participation remains to be clarified and will likely be on a case by case basis.

“This mainly reflects the heterogeneity of the private creditor base, which comprises a wide range of different international investors and lenders, including commercial banks, asset owners and managers, sovereign wealth funds, hedge funds and non-financial companies.

“Some creditors may face constraints on participation due to fiduciary obligations or regulatory considerations”, IIF stated.

Then, the Institute held that eligible sovereign borrower who would need to request the forbearance will need to consider the implications for credit ratings and future market access.

Mapping the private creditor base:

The Institute stated in the report that the World Bank’s annual International Debt Statistics (IDS) suggests that private creditors probably hold around 20% of the $500 billion of the 73 DSSI countries’ outstanding long-term public external debt stock.

In contrast, the Institute said private creditors hold some 75% of the debt stock of upper-middle income emerging markets.

World Bank tracks private creditors under three broad categories which include bondholders, who constitutes nearly 65% of the private creditor base of DSSI-countries.

This was followed by commercial banks that accounts for 25% and other private creditors 10%, such as manufacturers, exporters, and long-term trade credits guaranteed by an export credit agency.

Spotlight on Eurobonds:

IIF said few in-scope countries are active in international capital markets as only 26 of the 73 DSSI-eligible countries have outstanding international sovereign bonds.

Collectively, IIF explained that the total stock of DSSI Eurobonds amounts to some $70 billion, and Nigeria, Ghana, Angola, Côte d’Ivoire, Kenya and Pakistan account for over 70% of the total market.

As a percentage of GDP, borrowing in international bond markets is highest for Mongolia (27%), Côte d’Ivoire (17%), Senegal (17%) and Ghana (16%).

Meanwhile, outstanding Eurobonds represent less than 2% of GDP in Pakistan, Laos, Uzbekistan, Ethiopia, Kyrgyzstan, and Nicaragua.

Year-to-date issuance has been subdued at $3 billion, IIF stated this is the slowest pace since 2017.

St. Lucia and Grenada, each of these countries has a credit rating on long-term FX debt from at least one of the Big Three agencies, and all 26 fall into the speculative-grade category.

According to the joint World Bank/IMF debt sustainability framework, 8 of these countries are currently assessed at high risk of external debt distress (Cameroon, Ghana, Laos, Maldives, Tajikistan and Zambia) or already in debt distress (Grenada, Mozambique).

Across the DSSI countries, debt service suspension by official G20 bilateral creditors and IMF support will help, IIF held.

To date, IIF stated that four of the 26 countries with Eurobonds which include Benin, Ethiopia, Mozambique and Tajikistan have received debt relief from the IMF through the Catastrophe Containment and Relief Trust (CCRT) program and 10 of them have received IMF emergency financing.

While these four CCRT-eligible countries have a relatively small stock of outstanding Eurobonds and thus lower bond refinancing needs, the latter group of 10 includes Nigeria and Côte d’Ivoire—both of which have a relatively large private creditor base.

IIF reflected that countries that rely more heavily on Eurobond financing could therefore be less likely to request debt suspension from their bondholders.

This group includes Mongolia, Nigeria, Ghana, and Côte d’Ivoire, the Institute pinpointed.

“As we note in a recent letter to the heads of the IMF, World Bank and OECD, the potential implications for sovereign downgrades and defaults raise concerns about future market access”, the Institute stated.

Nigeria, Ghana, Other four countries account for 70% of DSSI $70bn Eurobonds