Zambia Won’t Get Higher Rating Than Angola’s B+, Barclays Says

Zambia, which plans to sell $1 billion of bonds this year in its first international debt issue, is unlikely to get a higher credit rating than the B+ assigned to Angola earlier this month, analysts say.

The southern African nation expects a rating higher than Angola’s and that B+ “should be the minimum,” Finance Minister Situmbeko Musokotwane said in a May 28 interview with CNBC Africa in Abidjan, Ivory Coast’s capital. Angola was granted a B+ rating, which is four notches below investment grade, on May 19 by Standard & Poor’s and Fitch Ratings, while Moody’s Investors Service assigned an equivalent ranking of B1.

“If they get a B+ rating I wouldn’t be surprised but I’m not sure they’ll be rated higher than Angola,” said Ridle Markus, an Africa strategist at Barclays Plc-owned Absa Capital in Johannesburg. “There aren’t a lot of red flags one can raise about Zambia.”

Zambia, Africa’s biggest copper producer, expects to achieve its first credit rating by the third quarter and proceed with an international bond sale soon afterwards, Musokotwane said last week. JP Morgan Chase & Co. is advising Zambia on the rating, said Musokotwane.

The country’s economy will probably expand more than 6 percent this year, boosted by higher copper prices and an estimated 42 percent surge in grain output, Musokotwane said. Copper, which accounts for about three quarters of Zambia’s export earnings, has more than doubled since the beginning of last year, climbing as high as $7,043 a ton in London today.

Rating Prospects

Zambia may be rated B, five levels below investment grade on the scales of Standard & Poor’s and Fitch Ratings, according to Gunther Kuschke, a sovereign risk analyst at Johannesburg- based Rand Merchant Bank.

“They’d be lucky to get a B+ rating, which looks a bit bullish,” said Kuschke. “One of the major drawbacks for Zambia is their narrow economic base and their reliance on donor aid.”

Donor aid accounts for about 20 percent of Zambia’s government revenue, said Kuschke. Angola’s donor receipts are “not substantial,” he said.

“Angola is also in a healthier fiscal position than Zambia and has marginally lower public debt,” said Kuschke.

Zambia ran a fiscal deficit of 3.1 percent of GDP for the year through May compared to Angola’s surplus of 3.9 percent over the same period, according to data from the Economist Intelligence Unit. Angola’s public debt is expected to reach 19.6 percent of GDP this year compared with 23.9 percent in Zambia, the EIU estimates.

Zambia’s currency, the kwacha, has weakened 7.4 percent this year to 5,010 per dollar, according to Bloomberg data.

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