Following a four-month civil war and three missed coupon payments the Cote d’Ivoire ‘32 eurobond, which traded as low as 34 cents on the dollar last year but YTD remains, among hard currency sovereign debt, by far the best performing developing market credit, continues to look attractive given the recent IMF-World Bank Heavily Indebted Poor Country (HIPC) debt reduction scheme announcement of over $6bn (roughly one half of its present, public debt composition with the expectation that additional bilateral debt relief will be realized in coming years (though IMF forecasts still envision external debt as comprising around half of GDP through 2013, in spite of an expected 2x increase in gross investment which will help pad domestic output).  That yields remain relatively sticky to SSA peers, however (the bond yielded ~8.5 percent last Friday), is a testament not just to the still undeclared arrears repayment schedule (and formal exit of default) but also lingering social tensions as well as uncertainty regarding structural, institutional reforms in crucial (read cocoa/coffee) economic sectors and persistent, budget straining energy expenditures (last year’s subsidy to the electricity sector for instance, which is financed with a portion of gas revenues, amounted to CFAF 104.5 billion compared to a target of CFAF 74.8 billion) which officials hope will be offset by newly passed and thus hitherto untested tax reforms (designed to expand the revenue collection base).  To this last point, the Ouattara regime’s late-April foray into the regional debt market underscores that the need for external financing will be omnipresent, particularly with the trend of lower cocoa prices since March 2011 correlating neatly with the country’s newfound and expected current account deficit going forward which, per the balance of payments must be somehow financed.  However, said financing is largely tied to both the supply and demand prospects for the crop, and as we’ve detailed in the past the long term supply issues are highly dependent on replacing an aging tree stock and [concurrently] vastly augmenting yields.  Moreover even near-term supply concerns persist despite last season’s weather buffeted record surplus (evidenced by the market’s apparent backwardation), a signal for some at least that “reforms” may have been haphazardly rushed in part to appease Paris Club debtors at the expense of adequately addressing a host of concerns from domestic farmers.

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