Our Correspondent | Africa Guardian
African Corporates Gaining Attention in Global Markets
African high-yield corporate debt issuance is poised for a possible comeback in 2024, albeit from a low starting point, as investors seek diversification opportunities in the sector.
Last week, two African-connected companies marked their entry into the US dollar market: Azule Energy, based in Angola, and Ivanhoe Mines, a Canadian company with assets in the Democratic Republic of Congo and South Africa.
Both companies launched five-year deals on Thursday, with no overlap in their outcomes. Investors showed significant interest in these new and unique opportunities, resulting in upsized deals.
Azule Energy, a joint venture between BP and Italy’s Eni, operates in the oil and gas sector, while Ivanhoe Mines focuses on metals and mining, with interests in copper, zinc, and platinum. Both companies held comprehensive roadshows to gather investor feedback, which informed their pricing strategies.
For Azule, investors drew comparisons to regional oil and gas players like Tullow Oil, Seplat, and Kosmos Energy. While none of these companies served as perfect benchmarks, they were considered more relevant than Angola’s sovereign debt, which is rated lower and carries a significantly higher yield.
The contrast between Angola’s debt and Azule’s bond was stark. Azule’s bond pricing started in the mid-to-high 8% range for a $1.2 billion five-year non-call two senior unsecured bond, a reflection of the company’s strong appeal in the emerging market energy sector.
According to Euart MacKerron, an EM credit research analyst at Aegon Asset Management, Azule’s standalone credit quality is impressive within the context of emerging-market exploration and production (E&P) companies. The company’s scale is notable, being about three times the size of Kosmos Energy, with low leverage of just 0.9 times, including floating production, storage, and offloading vessel leases.
Azule also generates strong operating and free cash flow, despite substantial capital expenditure for greenfield projects. The company’s ability to avoid repatriating funds is another positive feature compared to other African commodity exporters like Seplat or Ivanhoe.
With investor demand growing to more than $5.1 billion, the deal was priced at 8.125%, up from the initial target of $1 billion. The book attracted both emerging market and high-yield investors, with one lead manager noting a higher-than-expected presence of high-yield accounts.
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