Eurobonds are bonds issued in a currency other than the issuer's domestic currency, typically sold to international investors and listed on offshore exchanges like Luxembourg or London. The label 'eurobond' is historic — the early market was in eurodollars (US dollars held outside the US) — and has nothing to do with the euro currency. For most African sovereigns and large corporates, the eurobond market is the principal channel for accessing scale USD or EUR funding.
Why African sovereigns issue eurobonds
Domestic capital markets across Africa are typically too thin and too expensive to absorb large sovereign financing needs. Local-currency bonds can fund 3-5 year tenors at coupons of 12-16% in KES, NGN, or similar. The eurobond market offers USD or EUR funding at 7-12% (depending on credit) for 5-30 year tenors — cheaper in nominal terms and scaled to the financing requirements. The cost is currency mismatch: the sovereign's revenue is mostly in local currency, but its debt service is in USD.
The 2022-24 sudden stop
From mid-2022 through late 2024, the African eurobond primary market essentially closed for sub-investment-grade issuers. The cause was the fastest US monetary tightening in four decades plus a global risk-off shift that widened sub-IG spreads to recession levels. African sovereigns that had relied on the eurobond market to roll near-term maturities suddenly had no market access — a textbook sudden-stop episode.
Three sovereigns defaulted or restructured during the episode: Zambia (effective default in November 2020, restructuring agreed mid-2024), Ghana (December 2022, restructuring concluded mid-2024), and Chad (treated under Common Framework in 2021-22). Ethiopia treated its single eurobond under Common Framework. Kenya navigated the period with $1.5 billion of bridge financing and an early-2024 eurobond issue that priced at over 10% — wide by historical standards but a successful re-opening of the market for Kenya.
The G20 Common Framework
The G20 Common Framework for Debt Treatments, introduced in late 2020, was the international community's attempt to coordinate sovereign-debt restructurings for low-income countries. Its key innovation: bringing China — now the largest bilateral creditor to many African sovereigns — into the negotiation alongside the Paris Club and private bondholders. The framework requires comparable treatment across creditor categories.
In practice the Common Framework has been slow. Zambia, the first major test case, took roughly 3 years from default to agreed restructuring. Negotiations stumbled over disagreements between the IMF / Paris Club and Chinese lenders on whether multilateral debt should be included in the burden-sharing. The framework's defenders argue that it eventually delivers; its critics argue that the delay imposes enormous costs on debtor populations.
How a sovereign restructuring actually unfolds
- Default or imminent-default trigger: government announces inability to service debt as scheduled.
- Standstill agreement: temporary suspension of debt payments while negotiations begin.
- IMF programme: typically required by creditors as a condition for restructuring; provides macro framework and conditionality.
- Debt sustainability analysis: IMF DSA defines the 'envelope' — total debt reduction needed for sustainability.
- Creditor negotiations: bondholder committee, Paris Club, Chinese lenders negotiate haircut, maturity extension, coupon reduction.
- Exchange offer: existing bonds exchanged for new restructured instruments. Threshold approval typically requires 75-90% participation (collective action clauses help bind holdouts).
- Implementation: new bonds issued; restructured payments resume.
Holdouts and CACs
Sovereign restructurings historically failed when small minorities refused to participate, holding out for full payment. Collective Action Clauses (CACs), now standard in eurobond documentation, allow a supermajority of bondholders to bind a minority. The Argentine 2014 holdout battle (involving Elliott Management) led to widespread adoption of stronger 'aggregated' CACs that bind across multiple bond series simultaneously.
Pricing distressed sovereigns
When a sovereign approaches distress, its eurobond prices fall to reflect the market's expected recovery. A bond trading at 35 cents on the dollar implies the market expects roughly 35% recovery in any eventual restructuring — accounting for coupon discounting, maturity extension, and any nominal haircut. Distressed-debt funds buy below recovery expectations and unwind into the restructuring. Skilled distressed funds have generated significant returns on Zambian, Ghanaian, and Sri Lankan paper through this cycle.
Africa's outlook in 2026
The eurobond primary market re-opened meaningfully in 2024-25 as Fed cuts began. Côte d'Ivoire, Benin, Kenya, and Egypt all issued. Ghana's restructured bonds re-listed on the JSE and London exchanges. The lesson of the cycle: African sovereigns are usable issuers of foreign-currency debt, but the practice requires a sustainable fiscal trajectory and the buffer to ride out 2-3 year market closures. Building reserves and lengthening maturity profiles in calm years is the only insurance.
Exercise
A 10-year African eurobond was issued in 2021 at par with a 7.5% coupon. By late 2023 it trades at 60 cents on the dollar. What is the bond's approximate yield to maturity, and what does this tell you about the market's view of the sovereign?