Gabon bonds rebound as reduced debt burden cushions coup impact
Gabon’s dollar bonds rebounded from a two-day slump as the country’s lowered debt-servicing burden and the European Union’s comments on this week’s coup helped to calm investors’ nerves.
Debt due 2025 rallied 2.4 cents on the dollar and the note maturing in 2031 added 1 cent, for the biggest gains in emerging markets Friday. Indicative data from JPMorgan Chase & Co. signaled the country’s sovereign-risk premium was easing after jumping 265 basis points in the past two days.
The central African nation’s debt securities plunged after the military deposed President Ali Bongo in Sub-Saharan Africa’s ninth coup in three years. But the event was distinct from other military takeovers in the region, the EU’s top diplomat said Thursday in comments which helped steady market sentiment. Josep Borrell, the bloc’s foreign policy chief, cautioned against using force to restore civilian rule.
“There are military coup d’etats and there are institutional coup d’etats, which don’t use weapons, but if I rig elections to take power, it’s also an irregular way of getting power,” Borrell said in Toledo.
The coup had originally blindsided investors who had bought into Gabon’s debt swap just two weeks earlier, lending money on the strength of its marine conservation efforts. But they say the swap also reduced the overall risk in the country’s debt and they’ll wait for the next coupon payment to judge the new administration’s outlook.
“Technicals in the Gabon bonds are relatively clean as a lot of the loose paper was taken out by the recent tender,” said Anders Faergemann, a senior money manager at Pinebridge Investments in London. “The Street was probably neutral coming into the election. Whilst the coup was a left-field event, the Street was able to absorb some of the panic selling on the first day of the news.”
Gabon completed a debt-for-nature swap in mid-August in which it bought back $500 million worth of dollar bonds for $436 million and issued $500 million of fresh debt backed by so-called blue bonds. Investors prioritizing environmental, social and governance norms bought the new securities, including some who would have normally avoided a junk-rated nation like Gabon.
The buyback leg of the swap left the country’s coupon payments more manageable, Faergemann said. While the coup itself may lead rating companies to downgrade Gabon’s credit score, that will not be a new signal for investors to change their position, he said.
The key drivers of bond performance in the coming months would be Gabon’s progress in its engagement with the International Monetary Fund and a November deadline for payment of the next coupon on the 2031 bond.
The coup has intensified the country’s financing challenges because of the risk it poses to economic and political stability, Moody’s Investors Service said in a note to clients. “The likelihood of economic and financial sanctions being imposed on Gabon, and what shape they would take, remains uncertain at this early stage,” it said.
