African high-yield corporate issuance could be set for a resurgence this year, admittedly from a very low base, with investors keen to diversify into the sector.

Last week, two African-related companies made their debuts in the US dollar market: Angola-based Azule Energy (B2/B+; Moody's/Fitch) and Canadian firm Ivanhoe Mines (B/B), which has assets in the Democratic Republic of Congo and South Africa.

The two went head-to-head on Thursday with five-year deals, though neither impeded the outcome of the other. Indeed, both deals were upsized, such was investors' desire to buy something new and interesting.

Azule is an oil and gas company, the result of a joint venture between BP and Italy's Eni. Ivanhoe is a metals and mining company with interests in copper, zinc and platinum.

Both undertook extensive roadshows, with the lead banks taking feedback to inform their pricing strategy. The comparables for the two deals weren't straightforward.

For Azule, for example, investors considered other oil and gas companies in the region, such as Tullow Oil, Seplat and Kosmos Energy. None of those were perfect for various reasons, but they were much more meaningful reference points than the Angolan sovereign, which is lower rated at B3/B–/B– and whose December 2030 bond trades at close to 11%.

The contrast between Angola and Azule was made clear when leads opened books on a US$1.2bn five-year non-call two senior unsecured bond in the mid-to-high 8% area.

The company and its credit outlook appealed to investors. "Azule looks quite high quality in the context of EM E&Ps, certainly on a standalone basis," said Euart MacKerron, EM credit research analyst at Aegon Asset Management.

He said it is of much bigger scale than regional peers – for example, it is about three times the size of Kosmos Energy – and leverage "is fairly low" at 0.9 times, including floating production, storage and offloading vessel leases.

"It generates significant operating cashflow and free cashflow despite high greenfield capex for two projects," MacKerron said. In addition, there are no requirements to repatriate funds, which is "a positive versus some of the other African commodity exporters, such as Seplat or Ivanhoe".

With books growing to more than US$5.1bn, leads were able to tighten pricing to 8.125% and upsize from the issuer's original target of US$1bn. The book included EM and high-yield accounts, with one lead manager saying there was more of the latter "than we had expected".

Citigroup, JP Morgan, Standard Bank and Standard Chartered were global coordinators.

Strong outcome

Ivanhoe sold a US$750m five-year non-call two senior unsecured transaction at 7.875% from initial price thoughts in the low-to-mid 8% area.

The deal took a bit longer to execute but the outcome was equally strong, with the transaction upsized from an original target of US$600m.

Allocations were split between high-yield and EM buyers. "It was a reasonable balance. Copper, more than other [metals and mining] sectors gets bought by both," said a lead banker.

The best pricing comp was First Quantum Minerals, the Canada-based global copper company with assets in Latin America and Africa. FQM (B/B) has senior secured March 2029s that were bid at 7.11%, according to LSEG, and senior unsecured June 2031s at 7.62% by Wednesday's close. But its bonds, especially the 2029s, had rallied a lot over the course of the week.

Ivanhoe has four principal mining assets in the DRC and South Africa. One of the mines, Kamoa-Kakula in the DRC, is approaching its cash generation phase, which prompted the company to enter the bond market "to accelerate our investment capacity into our broader asset portfolio", it said in its deal presentation.

"It's a US$16bn market cap business founded by Robert Friedland, who is a pioneer – a real force of nature," said the banker about the company.

The big risk for investors is the DRC. "Yes, there's a risk, but it's one of the longest standing mining jurisdictions. Everyone operates there," said the banker.

Citigroup, BMO and Standard Bank were global coordinators.

Ivanhoe has a pro forma attributable net leverage ratio of 1.08 times based on last 12 months adjusted Ebitda of US$598m, according to the presentation.

There was one other African issuer in the US dollar market on Thursday, with Benin issuing a US$500m January 2041 amortising bond. That deal also saw a big revision in pricing to 8.625% from initial price thoughts of 9.25%–9.375%.

"They typically issue in euros but the DMO is very proactive, likes to diversify and the US dollar [market] is a much larger investor pool," said Raza Agha, head of EM sovereign strategy at Legal & General Investment Management.

Source: IFR