Senegal is set to issue a 200 billion CFA francs ($330 million) treasury bond in three tranches, attracting significant investor interest.
With the West African nation boasting one of Africa’s fastest-growing economies, investors have good reason to be excited.
Here are five factors driving investor enthusiasm for the bond issuance:
1. Quality of the Issuer
Senegal has established itself as a model of political stability in West Africa. The country has seen peaceful transitions of power since independence in 1960.
Recently, President Macky Sall announced he would not seek a third term in the 2024 elections, easing earlier political tensions.
Also Read: 2024 Outlook – A Year of Elections in Africa
The country has also established itself as a frequent and reliable participant in the West African Economic and Monetary Union’s (WAEMU) capital market. In 2023 alone, the Senegalese government conducted 44 bond and note issuances on this platform.
Global credit rating agencies Standard & Poor’s and Moody’s have classified Senegal at investment grade levels B+ and Ba3 respectively, underscoring the country’s improving creditworthiness.
The IMF also forecasts Senegal, already WAEMU’s second-largest economy, to record Africa’s second-highest economic growth rate this year and the world’s fifth.
2. Steady Income Stream
Like most government bonds, Senegal’s offering will provide investors with regular interest payments over the lifespan of the bond, enabling a steady stream of income.
The 5-year tranche pays a 6.25% coupon, the 7-year pays 6.45%, and the 10-year pays 6.65%, offering investors a robust and steady semi-annual income stream and ensuring healthy yields especially given current global rate trends.
3. Low Default Risk
Backed by a sovereign government, sovereign bonds like Senegal’s pose extremely little default risk compared to corporate paper. While corporate bonds offer juicy yields, they are only as reliable as the issuing company’s financial health.
Senegal has never defaulted on its obligations. Investors can count on the government to make good on its promised coupon payments and principal redemption.
4. Tax Advantages
Resident investors will enjoy exemption from taxes on interest payments and repayment of principal. This combination of healthy yields absent of taxes renders Senegalese bonds an attractive fixed-income proposition.
For foreign investors, income is subject to applicable national tax regimes.
5. Liquidity & Accessibility
Sovereign bonds tend to trade more actively owing to higher issuance volumes, ensuring healthy liquidity for investors.
The bonds can be bought directly from the government or through online investment platforms such as Daba.
They will trade on the francophone West Africa regional stock exchange, BRVM, providing liquidity for investors. The government reserves the right to repurchase bonds on the open market.
So investors can sell holdings fairly easily.
Investors can also conveniently purchase Senegalese bonds through brokerages or mutual funds without directly participating in auctions. The ability to relatively easily cash out investments before maturity provides additional flexibility.
With Senegal’s strong economic growth prospects and credit profile, combined with the reliability and advantages of a sovereign bond, investors can gain exposure to one of Africa’s star economies while earning an attractive risk-free return on their capital.
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