Senegal is facing significant investor concern, as evidenced by a selloff of its short-dated bonds, indicating an expectation of losses for bondholders. The nation's euro-denominated 2028 bond was particularly hard hit, plummeting over 8 cents on the euro after the government announced it would pursue a "debt treatment" under an enhanced version of the G20's Common Framework. This move is part of a new $2.2 billion program with the International Monetary Fund, and investors are now assuming losses are imminent, especially on shorter-dated paper. The euro bond due in 2028 saw approximately $13.1 million in turnover, marking its highest in two weeks.
The decision to pursue debt treatment follows the discovery of billions of dollars in undisclosed public debt by the previous administration in September 2024. The IMF now estimates this additional debt to be over $11 billion, with some analysts putting it closer to $13 billion, representing more than a quarter of Senegal's total debt. This revelation caused the country's debt-to-GDP ratio to soar to 130%, leading the IMF to freeze a previous $1.8 billion support program and triggering a bond selloff and credit rating downgrades. Senegal's total government debt, excluding state companies, stood at 23.67 trillion CFA francs ($42.10 billion) at the end of 2024, or 119% of GDP.
The next significant international debt payment for Senegal is due on September 13. While bonds did see a rebound on Wednesday, analysts like Sebastian Vargas of Seaport Global Holdings LLC characterized it as short covering rather than renewed confidence, anticipating continued volatile trading. Investors are awaiting clarity on the specifics of the debt treatment and how it will impact the upcoming September and March payments. The government has indicated that its CFA franc-denominated debt will not be included in the rework, impacting how it can restructure other borrowings. About half of its external debt is owed to multilateral lenders, while commercial creditors, including banks, pension funds, and hedge funds, hold the other half, with over $7 billion in international bonds.
