Reuters Breakingviews - Africa trumps U.S. junk as bond investment

   
Bondholders hunting for better returns may want to snap up new bonds from Africa rather than U.S. junk. Buyers are, of course, more familiar with lower-rated American companies like Sprint <S.N>, which just sold $6.5 billion of paper - a record for the U.S. junk bond market. But solid African economies with low debt may offer more upside and less risk.
   Nigeria's return to the international bond markets in July showed how far some of the continent's countries have come. The 10-year portion of its $1 billion deal sold at 3.9 percentage points above U.S. Treasuries, for a BB minus credit. Sprint's financing on Sep. 4, meanwhile, rated one notch lower cost it almost 5 percentage points above the benchmark - and interest rates have risen in the past two months, as well.
   Kenya and Tanzania, which are both planning bond deals, will probably have to pay more than Nigeria to entice investors. That's partly because neither has tapped the Eurobond market before - but also because neither is a well-established oil producer.
   Both, though, sport diversified commodity-based economies. GDP is growing at a fast clip and is set to jump by 5.8 percent in Kenya and by 7 percent in Tanzania this year, according to IMF estimates. Tanzania, which may soon start exporting natural gas, is looking robust in other areas, too: its domestic savings rate has grown quickly to 24 percent, suggesting the economy's improvement may now be self-sustaining.
   There are vulnerabilities. Both Kenya and Tanzania run substantial balance of payments deficits, have rapid population growth and remain dependent on aid agency resources. But government debt in each country stands just below 50 percent, excluding aid transfers. That looks high, but manageable.
   All in, the two countries can boast solid growth, improving living standards and the ability to service their debt. Sprint, meanwhile, is looking much more durable after merging with deep-pocketed SoftBank <9984.T>. But the U.S. telecoms carrier is highly leveraged with debt at 4.5 times EBITDA - compared with 1.7 times at AT&T <T.N> - and is not expected to turn even a meager profit until 2015. As risks go, lending to Africa is starting to look like a better bet.

CONTEXT NEWS  

   - The Mozambique government agency Ematum issued $500 million of seven-year government-guaranteed bonds on Sep. 6, with a yield of approximately 8.5 percent. 

   - Kenya may try to raise as much as $2 billion in the international bond markets by the end of the year, Finance Minister Henry Rotich said on Sept. 3. That is double the amount previously stated. The country expects to sell the bonds by the end of this year. Tanzania is also hoping to sell Eurobonds, hoping to raise around $1 billion. 

   - Nigeria sold $500 million of five-year bonds and $500 million of 10-year bonds on July 2, which were rated BB-/Ba3 by all three rating agencies. 

   - Sprint Corporation sold $6.5 billion of bonds Sep. 4, with $2.25 billion of eight-year 7.25 percent bonds and $4.25 billion of ten-year 7.875 percent bonds. The issue was rated B+ by Fitch. 

   - Reuters:  

     Debut Kenyan Eurobond could fetch $2 billion, says minister [ID:nIFR7TqfTf] 

      Mozambique's Ematum prices USD 500m seven year bond