GHANA ON Tuesday became the first ever country in Africa to issue a 41-year bond, successfully raising three billion dollars in the international debt capital markets.
Despite concerns raised over the coronavirus and its potential adverse impact on market conditions for emerging markets in general, a diverse investor base, largely from Europe and the US, supported Tuesday’s issuance, translating into a peak order book in excess of $15 billion (five times the amount required).
The sterling investor’s confidence in the country has been demonstrated by the competitive rate of 8.75% at which the 41-year weighted average life (WAL) tranche, the longest ever tenor bond issued by an African issuer, was issued compared to a rate of 8.95% 31-year bond issued in 2019.
The bond issuance comes two weeks after international ratings agency, Moody’s, gave a resounding vote of confidence in Ghana’s economy with a positive outlook.
This was made possible following a three-day road show in a series of fixed income investor meetings in New York, Boston and London, where Ghana issued a second tri-trance Eurobond transaction under its international capital markets programme.
The transaction comprised $1.25 billion six-year WAL, a billion dollar 14-year WAL and $750 million 41-year WAL priced at a coupon rate of 6.375%, 7.875% and 8.750% respectively.
Stellar macroeconomic fundamentals
Ghana’s growth rebounded strongly from 3.4% in 2016 to 8.1% in 2017 before moderating to 6.3% in 2018. It may be recalled that in 2016, Ghana issued a six-year Eurobond at 9.250% compared to Tuesday’s six-year bond at 6.375%, a staggering 288 basis points improvement.
In May 2017, Fitch affirmed the country’s rating at B and revised the outlook to stable while S&P in October 2018 upgraded the country’s rating from B- to B with a stable outlook. In January 2020, Moody’s revised the country’s outlook from stable to positive.
Growth has averaged seven per cent from 2017 and inflation, on the other hand, fell from 15.4% in December 2016 to 7.9% (new series) in December 2019, the lowest rate in recent times.
The cedi which has remained relatively stable against the country’s major trading currencies since 2017 appreciated in January 2020 against the US dollar.
According to Mr. Ofori-Atta, the proceeds for the bonds will support government’s budget for infrastructure, the restructuring of the energy and financial services sectors, and a liability management exercise.
In an interview with Bloomberg, Finance Minister Ken Ofori-Atta said government was considering expanding the country’s tax base to lessen its debt risk.
“I think yesterday’s was successful. Three billion dollars in three tranches – seven, 14 and 41 and we had a $15 billion book to work with. So clearly, the markets have rallied in support of Ghana post-IMF and that is good indication for the future for us,” he said.
Coronavirus threat
Answering a question on whether the coronavirus threat could affect the issuance of more bonds, the minister said Ghana was not going to go to the international capital market until 2021.
“I think clearly for Africa, the commodities issue will be impacted. Coffee is down by some 20 per cent; copper is about nine per cent or so and then crude oil is 17 per cent. But clearly the market was looking for a Ghana paper confident in the future. So we are quite comfortable that this is a paper to hold,” he said.
Further commenting on whether the debt to GDP was going to get worse based on the IMF’s 63 per cent estimate at the end of December 2019, Mr. Ofori-Atta said what Ghana had with the IMF was the financial sector restructuring, which Ghana had to pay for, and the energy sector restructuring.
Debt-to-GDP
Touching on this, he stated, “If you net all of those ones out, we are around 58 per cent or so of debt to GDP, but the key to all of these is the export booster we are expecting and this will be outside of commodity. If you look at our non-oil production contribution, that’s about 5.4 per cent growth, compared to oil growth. So we have a much more diversified economy than most and we expect to do that. As you know, the continental free trade act headquarters is going to be in Ghana, which means we are really going to be the pass-through for investment and trade into the future. We are banking on Ghana becoming a regional hub with regard to financial services, aviation and logistics, trade, etc. So for us, once we get through the rigidities, and get to profiling, we are confident with increase in revenue and exports in other areas, we should do well.”
March IPO
“But we are confident and we are targeting March for the IPO, which will further go to strengthen our foreign exchange reserves and also diversify the economy into a modern economy, and take advantage of branding as the largest gold exporter on the continent.
“We look to bring the 58 per cent debt-to-GDP further down. Currently, our domestic revenue mobilization is where we need to look at. Ghana is currently about 12.5 per cent revenue to GDP compared to our peers who are about 18 per cent. We are just about completing our national identification drive. So the tax base would be broadened and we will very soon be depending on that to fill the gap rather than on debt,” he said.
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