Zambia Sells Africa’s First 2014 Eurobond After Deficit Jump

Zambia sold $1 billion in Africa’s first sovereign dollar-debt offer of 2014 at an interest rate more than 300 basis points higher than its debut issue, after a widening fiscal deficit prompted a ratings downgrade last year.

The offer was about four times oversubscribed and had a rate of 8.5 percent, Chileshe Kandeta, spokesman for the Lusaka-based Finance Ministry, said by mobile phone today. The southern African nation will use the proceeds for energy and transportation infrastructure, acting Finance Minister Edgar Lungu said in a statement on the department’s website.

“The second bond, just like the first, was significantly oversubscribed -- an expression and affirmation of the confidence the international investor community has in Zambia,” said Lungu, who is also the country’s defense minister.

Zambia, which relies on copper for about 70 percent of its export earnings, sold its first dollar bond in 2012 at a coupon of 5.375 percent. It attracted bids of about $12 billion, the ministry said at the time. The country’s fiscal deficit was 6.7 percent of gross domestic product last year compared with a target of 4.3 percent, according to the ministry. That prompted Fitch Ratings to lower Zambia’s creditworthiness one step to B in October, five levels below investment grade.

Yields Fall

The debt may have attracted buyers because African sovereign bonds have performed well in recent weeks, Raza Agha, chief Middle East and Africa economist at VTB Capital Plc in London, said in reply to e-mailed questions. Yields on the continent’s notes fell 66 basis points from the 2014 peak reached on Feb. 3 to 5.38 percent yesterday, according to JPMorgan Chase & Co. indexes.

Yields on the debut $750 million notes due September 2022 dropped 23 basis points, or 0.23 percentage point, to 7.555 percent today, the lowest since Jan. 7 on a closing basis. They’ve fallen 78 basis points since reaching a record high of 8.331 percent on March 20.

Existing bonds usually weaken in response to a new sale, Agha said. The falling yield on Zambia’s debut “is largely a reflection of their low cash price,” he said. Deutsche Bank AG and Barclays Plc led both sales.

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