Posted by: Armel | January 29, 2012

Cameroon’s Sovereign Debt Payment on Schedule

The Country also  intends to leap from 0 to US$ 1 Billion in Sovereign Bond issuance in less than two years.

On December 29, 2011, Cameroon made a scheduled payment of 11.2 billion CFA francs (approx US$ 23 mil), corresponding to the interest payments under the 2011 bond issue of 5.60% net ECMR, 2010-2015. Launched by Cameroon between December 6, 2010 and December 15 2010, the bond was projected to finance thirteen infrastructure projects in the country starting in January of this year.  Those projects include a deep-sea port, hydroelectric dams, water distribution pipelines and road improvements.

Further, it appears that The finance ministry of Cameroon plans to issue another 285 billion CFA francs (US$ 557 million approx) worth of treasury bonds in 2012 to fund more infrastructure projects, with the first 20 billion CFA coming up for sale in February.

The first 10 billion CFA of new bonds should be issued on Feb. 9, while another 10 billion CFA will be split evenly between sales scheduled for Feb. 16 and Feb. 23.

In addition to the approx $400mil issuance of 2010-2011, we are fast approaching the US$1 billion cap in sovereign exposure and liabilities in less than 24 months. There is a lot of dissect in light of these developments.

Armel Njeunou

S/ces: Bloomberg, Thomson-Reuters, Minfi (cmr)

Posted by: Armel | July 19, 2011


Given the current climate of Sovereign debt default crisis all over Europe and the U.S, it’s only fair to assess whether Cameroon could possibly face a similar situation on their recent XAF 200bn treasury bond sale. Can Cameroon default on it’s sovereign debt ?

Looking at the structuring of ” ECMR 5,60% net 2010-2015 ” the first bond of its kind for Cameroon, it appears that contrary to what Ghana, Senegal or other African countries did, the country did not price this issue in a foreign currency. It makes it therefore somewhat insulated from big currency fluctuations in the markets. Given the current volatility in FX, those swings would not directly have an impact on the net debt service.  The indenture clearly mentioned that the interest and tranche repayments are coming from a direct withholding on the state global revenue pool. So, there is a special reserve made from deductions on the government Treasury account at the Central Bank (BEAC) that will be set aside for that purpose. Payments are set to resume in 2012 and the bulk of subscribers will be credited trough the Bank of Settlement via the CAA (Caisse Autonome d’Amortissement).

What you would not find anywhere on the marketing doc are ratings. The reason is simple, ratings agencies in general did not rate the cusip ” ECMR 5,60% net 2010-2015 “. However, if you care to know some of the methodologies applied to risk monitoring in fixed income investment such as sovereign debt, in the absence of a rating on securities sale by a specific government, the sovereign rating already assigned to the country itself will be used instead. In any scenario, the rating of any private entity or debt instrument cannot be higher than that of the Country.  Moody’s does not rate Cameroon, but Fitch does. Fitch rated the Republic of Cameroon Long-term foreign currency Issuer Default Rating (IDR) at ‘B’ with Stable Outlook and Short-term foreign currency IDR at ‘B’.  However, they rated Cameroon’s local currency IDR at ‘B-‘ with Stable Outlook. There is indeed a relationship between these sovereign ratings and the implied risk for the local T-bills holders:

-To begin, Fitch rated the foreign currency IDR at ‘B’. According to data at their disposal, Cameroon has the ability to meet its international financial commitments (debt repayment in any foreign currency) on a timely basis. Taken in context, that foreign currency IDR rating is irrelevant from the standpoint of  ” ECMR 5,60% net 2010-2015 “. In fact, what we have here is a local currency instrument, and the rating assigned to local currency commitments of the government of Cameroon is downgraded to ‘B-‘. More importantly, some private subscribers might not be aware that Cameroon actually defaulted before. Seven years ago, the republic of Cameroon was unable to fulfill it’s financial obligations towards paper holders (mostly local banks) and defaulted !

Of course at the time in 2004, the state budget was overly stressed to allow for foreign debt repayment which swallowed 41% of GDP in 2005 ! The situation is much better now with the GDP to public debt ratio of 13.2% in 2010 ( revised to 15.2% post new debt).

Overall, my assessment is that Cameroon has a much lighter balance now, and will meet all its obligations in regards to ” ECMR 5,60% net 2010-2015 “.  Thus, the security should get a high rating. The country cannot afford any missteps; The risk of not being able to find strong investor appetite for future funding needs is too great. Even if the fiscal situation deteriorates, the money will be there at the end as scheduled. On top of that, the rating agencies are watching closely as Fitch hinted at the possibility of a rating  upgrade should the government maintains a short history of repayment and further successful issuances.

Armel Njeunou

The Republic of Cameroon joins other African Countries in the CFA  and ECOWAS Zone as a Sovereign Bond issuer

Cameroon received a great opportunity under the Highly Indebted Poor Countries (HIPC) debt-reduction initiative, when the heavy burden of foreign debt service, was reduced by 85% in 2005-2006. Basically, those actions from international creditors gave the Government of Cameroon a clean slate to go out, borrow and actually finance development projects. For a very long time, a large portion of the budget was set aside to service (interest and tranches obligations) the outstanding debt.  Which means that whenever taxes and duties were collected on local citizens and businesses, a large portion of those reserves went straight to pay only interest on a new loan that was contracted because the country was unable to make scheduled payments on the original debt ! That’s basically how strained and overstretched public finances were for decades in most developing economies.

As Cameroon entered the HIPC debt-reduction initiative, the fiscal situation became much better since the government no longer had to carry that weight around. It was therefore predictable that the country will tap the private markets for future borrowing needs. Senegal, Angola, Ghana all had a jump start to a noticeable sovereign bond issuance trend in SSA (Sub-Saharan Africa not incl. South Africa). For the last 2 years, given the quite substantial reduction in external repayments, the state of public finances vastly improved in the whole region. So depending on the ratings received, economic outlook and other risk factors, the appetite is now there from the international community of fund managers, fixed income strategists and anyone buying in on frontier markets potential.

Ghana led all of SSA in 2008 with a 10 yr $750 millions international bond issue priced at 8.5%. This was a premiere for the region and a success as S&P assigned a B+ rating to the securities.

Senegal followed by issuing its debut benchmark sovereign bond. The US$ 500 million 10-year new issue carries a coupon of 8.75% and is rated B1 by Moodys and B+ by Standard & Poors.

Late last year, Cameroon was able to successfully locally raise the equivalent of $400.5 Millions (approx)  trough the sale of treasury bills obligations payable in 5 years with a coupon of 5.6%. The issue although not rated, was primarily subscribed via local banks and within days, the XAF (CFA) 200 billions (bn) were collected.

Armel Njeunou

Posted by: Armel | June 2, 2011

GREECE: How to waste money…

Here we are, a year after, ANOTHER round of bailout being discussed for Greece. Skipping all the risk involved and the impact on the Euro currency, Greece is just another case of wasted resources. Basically putting good money after bad !

The idea is that only a bailout would give Greece time to work out its problems while ensuring that the foreign banks holding the 340 billion euros of outstanding debt would still get paid with a couple of billions in “haircut”. French and German financial institutions have the most to lose in these restructuring scenarios.

In the end, it comes down to the government ability to repay the debt over time. Re-aligning the payments and extending the deadlines would not-in my view- make a big difference. To begin, the schemes used to calculate the potential of repayment, were made out of wish thinking ! There are strong facts that in reality will put the sovereign crisis back in the front a couple of months from now:

Only 25% of tax goals were achieved by the government during last round of revenues review. A third of the country works for the government, so massive layoffs are expected to rein in the size of state employees. The growth expectations are simply too optimistic. So how can they –in their wildest dream- expect the now revolted citizens to pay not only 100% of existing taxes rates, but also pay an additional $2000 per family in average?

These overestimations from a pure statistical point of view are more than 3 standard deviations away from the mean. The mean being the reality of their previous tax revenue collection compared to projection. Historically, Greece always had trouble paying its debt. People have to realize its almost a Greek tradition to not repay the debt. Greece often defaulted in the past, and it’s therefore an outlier to believe the behavior will be different this time. Lets consider all the facts and historical data as reality which means expect the worse (default), or another round of bailout at least a year from now. Although the Credit Default Swaps (CDS) might not get activated this time, they eventually will: It’s inevitable!

Armel Njeunou

Posted by: Armel | November 13, 2010

Incitation à l’investissement en Côte d’Ivoire

Au cours de l’année 2010, le secteur privé ivoirien a bénéficié d’importantes mesures. Celles-ci se sont traduites en des suppressions de certaines taxes avec pour objectif, créer les conditions incitatives à l’investissement.

Liste non exhaustive des mesures prise par le ministere des finances contenue dans l’annexe fiscale 2010:

-La suppression de la taxe pour le développement de l’habitat dans le souci d’encourager les opérateurs économiques intervenant dans le secteur de l’habitat

-Au titre de l’exemption de TVA des ventes et des prestations de services faites à certaines entreprises exportatrices, il a été institué une régie de remboursement des crédits de TVA, en vue d’assurer l’effectivité du remboursement de ladite taxe et d’éviter la constitution de nouveaux crédits d’impôt. 

-En outre, il est proposé d’exempter de la taxe sur la valeur ajoutée sur une période de deux (2) ans, les ventes et les prestations de services pour les besoins de leurs activités, faites aux entreprises de transformation de café, de cacao, d’hévéa, de palmier à huile et de banane qui réalisent plus de 70% de leur chiffre d’affaires à l’exportation.

Toujours au titre des mesures d’exception à l’égard des entreprises, l’Etat a accepté la réduction de la base de la retenue de l’impôt sur les bénéfices non commerciaux au titre des sommes versées aux compagnies de réassurance n’ayant pas d’installations professionnelles en Côte d’Ivoire. 

Read More…


The Financial Times et Emerging Markets mettent a l’honneur pour la premiere fois, un ministre francophone: Charles Koffi Diby Ministre des Finances de Cote D’Ivoire


Emerging Markets, le quotidien de référence pour les assemblées annuelles du Fmi et de la Banque mondiale ainsi que celles des banques régionales de développement depuis 20 ans, a décerné, samedi à Washington, au ministre de l’Economie et des Finances, M. Charles Koffi Diby, le Prix du Meilleur ministre des Finances en Afrique subsaharienne pour l’année 2010

Après le Prix de meilleur ministre des finances de la zone Afrique pour 2009 à lui décerné en janvier 2010 et remis officiellement au mois de février de cette année par The Financial Times, les qualités de bon manager des finances publiques viennent ainsi, pour la seconde fois, être reconnues au ministre Charles Koffi Diby

Armel Njeunou

Sources:, Emerging Markets


Posted by: Armel | June 29, 2010

How high can Gold jump ?


How high can Gold jump ?

Remember that Portfolio Managers can only read what the market writes not what the market ought to say.  With that notion in mind, they can assume that since Gold consumption (jewellry use) is actually down, the recent rise in Gold price cannot be studied with a fundamental approach. In fact, since ownership of Gold bars doesn’t entitle to any kind of interest tranches or payments, then its rise in value is just based on whatever the market participants agree to.  

For some,  this sounds as the begining of a “bubble”  but i’ll say it depends on whether you are swimming with bullions or derivatives.

Armel Njeunou

The Chinese Currency exchange rate was recently adjusted from it’s artificially fixed level. This move by the Chinese authorities only happened after much International outcry from the West. But what will the adjustment mean in the face of austerity measures all over Europe?

Quarterly numbers will probably say more than current velocity in the FX markets.

Armel Njeunou

Posted by: Armel | June 6, 2010

Angela Merkel to Tim Geithner: GTFOH !!

Geithner to EU: “Step up consumption”. Merkel: GTFOH !!

Portfolio Managers are going to make new allocation adjustments starting NOW due to recent developments affecting these turbulent markets. 

The Treasury Sec. Geithner went to his counterparts mostly in Europe and asked them to increase their domestic consumption, because the US could n0 longer carry the bulk of G20 consumption margins. The US was hoping to get Euro Zone Finance Ministers to understand that without rebalancing of domestic policies, global growth was going to stall. The message was not received by the Euro most important member: Germany. Angela Merkel just responded with what sounded like a rebuttal by announcing  large budget cuts, along with a tightening of entitlement spending. Without looking deeper into the line items, this should send a stronger signal to France to follow suit. 

In all, US and Germany (for now) are going in opposite directions to contain the sovereign debt crisis. Just 3 days ago, one more EU member came under scrutiny on fresh doubts over published economic data, and it all adds to the pressure felt everywhere in the G20. One has to wonder what will be next…

Armel Njeunou

Posted by: Armel | February 14, 2010

Financial Reform: The Canadian Model


How Financial Regulation saved the Canadian Banking System from the crisis.

Has anyone noticed that Canada is the only country member of the G7 where the state did not have to bail out its financial sector? A recent World Economic Forum report rated the Canadian banking system the World’s soundest. Understanding why the Canadian system survived could be a key to making the rest of the west equally robust.

Julie Dickson the head of the Office of the Superintendent of Financial Institutions (OSFI), points to 3 specific restrictions: capital requirements (tier one of 7%), quality of capital (75% in common equity),  and a leverage ratio (debt to equity of 20 to 1). The Canadian system is based on principles; it is about the spirit, not the letter, of the law. Therefore, financial institution have to know the risks undertaken.

Five or 10 years ago when financial engineering was in vogue across the world and light-touch regulation seemed to be a pre-requisite, the mystery is how did Canadian policymakers avoid to get into that race? Paul Martin who was finance minister for some time, and served as Prime Minister of Canada, knew there was going to be a banking crisis some day.  He just worked with the legislators to be damn sure that when a crisis occurred, it wouldn’t occur in Canada.

The irony is that even the IMF chided Canada for being too timid and not promoting debt securitisation enough! May be the rest of West can learn something from Toronto’s Bay Street.

Chrystia Freeland
Source: "Canada's Great Escape" by Chrystia Freeland for FT

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