20100914
reuters

JOHANNESBURG (Reuters) - Local currency rather than dollar-denominated African debt should be on the menu for yield-seeking investors, especially in oil-rich countries where the currency risk is minimal, Insparo Asset Management says.

Sub-Saharan domestic debt has attracted huge outside interest over the last year, pushing down yields across the curve from the sophisticated markets of South Africa to more exotic sovereign issuers such as Zambia and Uganda.

In Kenya 3-year government debt is yielding 4 percent and in Uganda, where the absence of a liquid secondary market means many foreigners prefer to hold three-month paper to maturity, such debt is offering annualised returns of just 5 percent.

However, Ghana stands out due to double-digit interest rates still in place after an election-related fiscal blow-out in late 2008 sparked a surge in inflation.

Its one-year domestic treasury bills are now yielding around 12.5 percent compared to 6.0 percent on the West African state's 10-year Eurobond, launched in late 2007.

Foreign interest since the financial crisis in a Eurobond issued by oil-producing Gabon around the same time has also compressed that yield to a low of 5.74 percent compared to an initial coupon of 8.2 percent.

Ghana's bond had a coupon at issue of 8.5 percent.

"The local currency yield story in Ghana would be a top pick," said Insparo chief strategist Graham Stock, the latest in a string of new recruits at the London-based frontier investment house.