Rand Merchant Bank cautions over RDA $1.5 bn bond

By NKOLE CHITALA
RAND Merchant Bank (RMB), a division of FirstRand Bank Limited, has cautioned Government over the planned issuance of bonds by state-owned enterprises saying it will push up the country’s debt gross domestic product  (GDP) ratio to 50 percent.
The Road Development Agency (RDA) plans to sell a US$1.5 billion bond by the end of the year while Lusaka City Council (LCC) is also looking for advisers in its planned US$500 million bond sale.
Similarly, Zesco Limited intends to raise as much as US$250 million for infrastructure development.
But  Rand Merchant Bank macro strategist for global markets Celeste Fauconnier said the issuance of the bonds by the council and two state- owned enterprises could significantly propel debt of GDP ratio for the country.
“The debt ratio is currently 28 percent, if all those issuances are successful and done in one fiscal year, and reaches around US$4 billion  (assuming Zesco raised US$500 million – which was our initial understanding) and adding the Eurobond, all the issuances would add up to almost US$4 billion.
“This could push the current 28 percent debt level towards the 50 percent mark,” she said.
Ms Fauconnier was speaking during the First National Bank presentation in Lusaka recently.
State-owned firms want to tap into international debt markets after the country sold its first 10-year bond last year. Zambia raised US$750 million through its Eurobond.
Government debt as a percent of GDP, also known as debt-to-GDP ratio, is the amount of national debt a country has in percentage of its GDP.
Zambia recorded a GDP of 31.20 percent of the country’s gross domestic product in 2011.
Historically, from 1990 until 2011, Government debt-to-GDP averaged 122.9 percent reaching an all-time high of 277.5 percent in December of 1991 and a record low of 4.4 percent in December of 2006.
Generally, Government debt as a percent of GDP is used by investors to measure a country’s ability to make future payments on its debt, thus affecting the country borrowing costs and government bond yields.