Senegal bonds overvalued, Amundi says, as debt rework looms

LONDON, Sept 11 (Reuters) - Senegal's bond prices may not fully reflect the risks of the country's looming debt restructuring, Amundi said, arguing that bondholders might end up shouldering much of the adjustment needed to restore debt sustainability.

The West African nation last week announced a debt treatment plan to return its finances to a sustainable footing, two years after the government unveiled billions of dollars of previously misreported debt that analysts now peg at roughly $13 billion.

Leaders long resisted a debt rework - and say even now that they will reprofile rather than restructure. Reprofiling involves extending maturities and ⁠renegotiating interest rates.

But Sergei Strigo, head of emerging markets fixed income at Amundi, Europe's largest asset manager, said the restructuring was unlikely to be as light-touch as current bond prices appeared to suggest.

"I find it difficult to see bond prices at current levels making sense," he said of bonds, which are bidding in the low fifties on the dollar and euro.

Senegal needs to put its debt, estimated at more than 130% of GDP, on a sustainable path under IMF requirements in order to secure a $2.2 billion programme.

Senegal's decision to exclude CFA-denominated debt ⁠from the operation, combined with the preferential treatment typically afforded to multilateral and concessional lenders, suggested much of the required debt relief could fall on external bondholders, Strigo said.

"If you exclude one group, you exclude another group, you exclude the third group from restructuring - everything is shifting towards the bondholders," ⁠he said.

An IMF debt sustainability analysis will ultimately determine the debt relief required to restore sustainability, with Senegal and its creditors then negotiating how those targets are met.

A group of at least eight funds ⁠holding the bonds formed a creditor group, and this week hired law firm White & Case to represent them during the process.

Strigo said Amundi, which is invested in both dollar- and euro-denominated ⁠bonds issued by Senegal, would consider joining the group.

"I would expect there (are) going to be a lot of real money investors involved in the discussions about how to reprofile or restructure their debt."

Reporting by Karin Strohecker and Libby George; Editing by Alexandra Hudson

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Libby George

Thomson Reuters

Libby George is a London-based journalist on the Reuters emerging markets team. She was part of a team named as Pulitzer finalists in 2023, and who won the Selden Ring Award for International Investigative Reporting, for a series of stories revealing abuses by Nigeria's military. After launching her career as a political journalist in Washington, D.C., she joined Reuters in 2015 covering oil, and from 2019-2023, she was senior correspondent and acting bureau chief based in Lagos, Nigeria.

Karin Strohecker

Thomson Reuters

Karin Strohecker is the London-based Global Chief Correspondent for Emerging Markets, leading a team that covers debt and economic issues and investment trends in developing nations around the globe. Having joined Reuters more than 20 years ago, Karin has worked in text and television in Frankfurt, Berlin and Vienna, covering major events such as IMF World Bank meetings in Washington, the World Economic Forum in Davos, OPEC meetings and the World Cup.