Default Forgiven as Ivory Coast Hits Eurobond Sales Trail

Less than four years after defaulting on $2.3 billion of bonds, Ivory Coast is betting investors are ready to give it another chance.

The world’s biggest cocoa producer began investor meetings in London yesterday to pitch $500 million of 10-year securities, according to a June 27 document from Prime Minister Daniel Kablan Duncan’s office. That would be the nation’s first new Eurobond since missing an interest payment in December 2010. Ivory Coast dollar debt returned 10 percent this year, according to Bank of America Merrill Lynch data, outperforming a Bloomberg measure of emerging-market bonds, which made 8.9 percent.

With cocoa production surging and coffee output climbing, first-quarter government revenue was at least 26 percent higher than forecast. The International Monetary Fund says Ivory Coast’s economy will grow 8.2 percent this year, faster than the sub-Saharan African average of 5.4 percent, rebounding from a 2011 contraction amid a conflict that killed more than 3,000 people.

“Ivory Coast has recovered on all fronts post-civil war, both in terms of political stability, and in terms of economic fundamentals,” Mahan Namin, a money manager at London-based Insparo Asset Management, which oversees $161 million of investments including African bonds, said in an e-mailed response to questions on July 8. The target amount is reasonable, and the country has “strong growth” prospects, he said.

War Crimes

The default occurred less than three months after the outcome of an election was disputed by President Laurent Gbagbo, leaving the country of 20 million people mired in conflict that lasted until April 2011, when he was arrested. Gbagbo and his wife Simone face crimes against humanity charges at the International Criminal Court in The Hague.

“Once we had a change of government, I always felt there was an opportunity for a new dawn,” Stephen Bailey-Smith, head of African strategy at Standard Bank Group Ltd.’s unit in London, said by phone July 8.

Moody’s Investors Service rated the country B1 on July 8, four steps below investment grade and one level higher than neighboring Ghana. Ivory Coast was given a positive outlook with a projection for a “stable” fiscal deficit this year of 2.4 percent of gross domestic product, Moody’s said. The government said Fitch Ratings is also set to judge the country’s creditworthiness. Fitch declined to comment in an e-mail on July 8.

Forces Regroup

“We are optimistic about the Eurobond,” Jacques Assahore, deputy managing director of the Ivorian Treasury, said by phone on July 8.

President Alassane Ouattara will seek re-election in an October 2015 vote that may heighten tension, said Angus Downie, London-based head of economic research at Ecobank Transnational Inc.

“The run-up to election could see pro-Gbagbo forces regroup,” he said in an e-mailed response to questions on July 8. The yield at a bond sale may be 7.5 percent to 8.5 percent, partly reflecting lingering “pockets of insecurity in the country,” Downie said.

The yield on Ivorian debt due December 2032 fell 140 basis points this year to 6.09 percent by 3 p.m. in Abidjan, a record low. The notes were offered to holders of the country’s Brady bonds, a decade after Ivory Coast missed payments on those securities. The yield on Ghana’s August 2023 dollar bond was 8.69 percent.

Ouattara will probably win next year’s vote, according to Bailey-Smith, who projected yields at 6.25 percent to 6.5 percent.

“It’s a perfect time for them to come to market,” he said. “The economy is well balanced. The country has oil, gold and cocoa and good potential to develop its light manufacturing industries and tourism. Ivory Coast has a great story to tell.”

Before it's here, it's on the Bloomberg Terminal.