Senegal's bond prices may understate debt rework risk, Amundi warns
Amundi says Senegal's bond prices may not fully reflect the risks of its debt treatment plan, with external bondholders potentially bearing much of the adjustment.
Senegal's bond prices may not adequately reflect the risks of the country's planned debt treatment, according to Amundi, Europe's largest asset manager, which warned that external bondholders could end up absorbing much of the adjustment needed to restore debt sustainability.
Senegal announced a debt treatment plan last week aimed at returning its finances to a sustainable footing. The move comes two years after the government disclosed billions of dollars of previously misreported debt, which analysts now estimate at roughly $13 billion. The country's leaders have long resisted a debt rework and maintain that they will reprofile rather than restructure — a lighter-touch approach involving extended maturities and renegotiated interest rates.
Sergei Strigo, head of emerging markets fixed income at Amundi, said the restructuring was unlikely to be as mild as current bond prices suggest. Senegal's bonds are trading in the low fifties on the dollar and euro. "I find it difficult to see bond prices at current levels making sense," he said.
Senegal must place its debt, estimated at more than 130% of GDP, on a sustainable path under IMF requirements to secure a $2.2 billion programme. Strigo noted that Senegal's decision to exclude CFA-denominated debt from the operation, combined with the preferential treatment typically given to multilateral and concessional lenders, meant much of the required relief could fall on external bondholders. "If you exclude one group, you exclude another group, you exclude the third group from restructuring — everything is shifting towards the bondholders," he said.
An IMF debt sustainability analysis will ultimately determine how much relief is needed, after which Senegal and its creditors will negotiate how those targets are met. A group of at least eight funds holding the bonds has formed a creditor group and this week hired law firm White & Case to represent it during the process.
Strigo said Amundi, which holds both dollar- and euro-denominated Senegalese bonds, would consider joining the creditor group. "I would expect there (are) going to be a lot of real money investors involved in the discussions about how to reprofile or restructure their debt," he said.