Zambia’s Bond Sale Draws Robust Demand After Hichilema Wins Vote

Zambia's borrowing costs fell in the first bond auction since this month's elections as investors bet that political continuity will bolster the prospects of Africa's second-biggest copper producer.

Bids in the local currency multi-tenor sale exceeded the 6.3 billion kwacha ($332 million) on offer by 37%, according to data posted on the Bank of Zambia website. The seven-year bond attracted the strongest interest, with yields tightening to 14.79%, down 101 basis points since the last auction in June.

Citigroup Inc. said last week that it planned to go long in Zambia's debt, predicting that yields would drop following victory for the incumbent President Hakainde Hichilema in the ballot on Aug. 13. Strategists including Katie Kironde said they expected political continuity and fiscal consolidation would lead to ratings upgrades.

Opposition leader Brian Mundubile disputes the result of the election and had intended to file a petition with the Constitutional Court on Monday, before it was sealed off by Zambian authorities.

Still, the recovery in demand for bonds since the June sale, when bids fell short of the 6.3 billion kwacha offered, suggests "reduced political risk and renewed investor confidence," according to Eugene Hangoma, head of treasury sales at First Capital Bank Limited in Lusaka.

"One auction isn't definitive," he said, noting that the views were his own and not necessarily those of the bank. "But this result is an early, meaningful signal of post-election market confidence."

The southern African nation's bonds have handed investors some of the world's best returns so far this year.

Holders of Zambia's local currency debt have reaped some 37% in total returns so far this year, the second-best in the world after Colombia, according to data compiled by Bloomberg. By contrast, a Bloomberg index that tracks emerging markets local currency debt is showing a return of just 4%.

Read the full piece on Bloomberg here.