Serrari Group

In a shocking turn of events, Gabon, a Central African nation, experienced a significant plunge in its dollar bonds following a military coup that unfolded on Wednesday. This rapid decline marked the most substantial daily drop since the peak of the COVID-19 pandemic, sending reverberations across financial markets. The coup transpired only weeks after Gabon had successfully executed Africa’s inaugural debt-for-nature swap, a pioneering initiative on the continent.

The military coup was announced via national television by a group of senior military officers during the early hours of Wednesday. This announcement closely followed the declaration by the state election body that President Ali Bongo had secured a third term in office. The repercussions of this power shift were acutely felt in the financial realm, with the Gabonese dollar bonds maturing in 2025 experiencing the sharpest decline, plummeting by as much as 14 cents. Although these bonds managed to recover slightly, they remained down by 9.5 cents, trading at 83.41 cents.

This striking decline marked the most significant drop since the market turmoil witnessed during the COVID-19 crisis in March 2020. The dollar bonds with maturity dates in 2031 also faced considerable losses, each decreasing by around 7 cents. Financial experts immediately identified potential challenges for bondholders, especially if sanctions were imposed on the nation, which could impede financial transactions to and from Gabon. Charlie Robertson, the Head of Macro Strategy at FIM Partners, underscored these concerns, emphasizing the possibility of complications arising for bondholders.

The military coup, if successfully executed, would mark the eighth instance of such political upheaval in West and Central Africa since 2020. This precarious situation could exacerbate the already tenuous access to financing that many African countries are contending with. Heightened interest rates and mounting debt burdens have led to a complete absence of new Eurobond issuances from any African nation for over a year. Tellimer, a reputable research firm, further raised alarms by suggesting that both multilateral and bilateral lenders might alter or suspend concessional lending arrangements in response to the coup.

Simultaneously, companies linked to Gabon’s oil industry witnessed a substantial drop in their share prices. Oil producers TotalEnergies Gabon and Maurel et Prom observed their share values plummet by more than 20% at a certain point, underscoring the broader economic uncertainty generated by the coup.

Notably, Gabon had recently concluded a groundbreaking “$436 million debt-for-nature” swap, an endeavor designed to exchange portions of its 2025 and 2031 Eurobonds for a unique “blue bond” that matures in 2038. This innovative approach aimed to generate funds for marine conservation efforts. The blue bond was fortified with political risk insurance from the U.S. Development Finance Corporation, offering a safety net in case of default.

Nevertheless, the precise terms of this insurance arrangement were not publicly disclosed at the time of the deal, leaving some uncertainties surrounding its coverage. Despite the turmoil, experts are confident that bondholders are not immediately at risk, as the next Eurobond coupon payment is slated for November 24 of this year.

The ripple effects of this coup could extend beyond Gabon’s borders, contingent on factors such as sanctions and the nation’s willingness to honor its financial obligations. While some investors expressed doubts about an immediate impact on other international bond issuers in Sub-Saharan Africa, the situation has prompted a reevaluation of investment strategies in the region’s broader political landscape.

In conclusion, Gabon’s financial markets have been rattled by a military coup that triggered the sharpest drop in dollar bonds since the pandemic’s onset. The implications of this coup extend beyond finance, potentially reshaping the political dynamics of the region. As the situation continues to develop, market participants are closely monitoring the evolving landscape in Gabon and its broader repercussions.

Photo Source: Google

August 30, 2023

By: Delino Gayweh

Serrari Financial Analyst

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