African banks brace for Eurobond refinancings amid challenging market conditions

Absa and Standard Bank are among 12 African banks with outstanding Eurobonds that Moody’s says will likely be refinanced through a combination of capital markets sources, including newer long-term Euro and dollar-denominated bonds, lending market instruments the finance institutions’ own foreign currency liquidity.

Standard Bank issued $200 million worth of Eurobonds in March 2020 at a 2.875% coupon rate. The bonds mature in 2020 and are listed by Moody’s as outstanding.

Absa Group on the other hand issued $500m junior notes in May 2021 that have an unspecified maturity date and a call date of May 2026. The bank’s notes have a 6.375% coupon rate.

Other banks with upcoming Eurobond maturities include Ecobank, the Mauritius Commercial Bank, and about eight Nigerian banks - among them Access Bank, Fidelity and First Bank of Nigeria.

“A cohort of African banks is facing upcoming Eurobond maturities, with a large portion of these coming due in the second half of 2025 or in 2026. While these banks represent a small subset of the banks we rate in Africa, this wall of Eurobond maturities is still large,” said Moody’s senior credit officer, Mik Kabeya.

Moody’s now expects that this group of African banks with Eurobonds maturing in the next 18 months will largely be “opportunistic in their choice of refinancing sources, using a combination of Eurobonds, lending markets or a temporary use of their own liquidity” instruments.

In pursuit of utilisation of own liquidity resources, some of Africa's most conservative banks are seen sharpening up mobilisation of foreign currency deposits from depositors. These foreign currency deposits would be used to “finance short-dated foreign currency” assets.

Such deposits would be sourced from depositor corporates that generate foreign currency cash flows, high net worth individuals who keep an increasing portion of their FC on the continent and affluent customers who convert part of their local currency income as a store of value.

“For most of these upcoming maturities, refinancing through Eurobonds — despite the high cost of that source of FC funding — will reflect the depth of international debt markets in comparison with lending markets and the resulting importance of being a repeat issuer,” noted Kabeya.

Nonetheless, it was more likely that a portion of the upcoming Eurobond maturities will “be refinanced through lending markets because of the more attractive pricing” currently obtaining.

Regional banks that were more likely to use use their own liquidity would do so temporarily as a means of repaying their Eurobond as they await “more favourable market conditions as interest rates” come down.

“For Nigerian banks, the material improvement in their domestic FC liquidity conditions in the last two years will give them some flexibility in dealing with these maturities,” said Kabeya.

The South African banks have an advantage in that they are likely to be recipients of international commercial banks extending lending through FC basis trades or other collateralised transactions.

These types of trades, said Moody’s, were likely to be set up in Africa’s most advanced jurisdictions with active derivative markets. These include South Africa and Nigeria, with banks in these jurisdictions also likely to benefit from a variety of

Collateral based facilities that include US Treasury securities, local currency-denominated debt securities issued by African governments or local currency.

Moody’s notes that the aggregate size of Eurobond maturities due in 2025-26 totals $1.5 billion, with an additional $1bn in issuances that have 2026 call dates.

For Nigeria, Moody’s has noted changes in the West African country’s foreign-exchange management, an increase in remittances, central bank swap repayments and clearing a significant portion of unsettled central bank foreign currency forwards.

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