It has been over a year since the Republic of Congo announced the perimeter of its external debt restructuring, and some 18 months since it announced its intention to restructure its debts, in the context of an IMF programme, and after a few false starts along the way, an IMF agreement is now within reach. We think a programme – a three-year ECF – may be approved as soon as June.
As a sign of progress, the government announced that a debt restructuring agreement was reached with China on 29 April. Securing necessary financing assurances from China, the country’s largest bilateral creditor, is a key pre-condition to IMF lending. Other programme requirements, including implementing structural reforms, and measures to improve transparency and governance, have also made progress, while fiscal performance has improved markedly. Indeed, an IMF statement on 9 May at the conclusion of a staff visit announced that an agreement had been reached, ad referendum, on a programme that could be supported by an ECF arrangement (although it didn’t specify the timing of the board review).
We maintain our Hold on REPCON bonds. Optimism that an IMF agreement was getting closer, which resurfaced following the IMF Spring Meetings in April, has seen the bonds jump from c80 to 88 (indicative mid-price basis on Bloomberg). As a result, the yield has fallen from c11% to 9% (average life basis). Yet, while REPCON, with a 2029 maturity and a c4 years duration, still trades wider than most of its SSA peers even after the recent price jump, we think it is difficult to justify further upside at this stage, given the long absence of any hard data and lack of other information on the policy and reform agenda, the debt situation and debt restructuring outcome. Put simply, we do not know at this stage what a post-restructuring Republic of Congo looks like.