Eurobond Cash To Hit Ghana’s Account In Weeks


Cash from last week’s 1 billion dollar Eurobond issue is expected to hit the Bank of Ghana’s (BoG) account in a few weeks.

According to Finance Minister, Seth Tekper ‘ once the processes are complete, the Bank of Ghana has an account which will take care of the proceeds as done in the past, i will not give a specific time line because of the process involved, but i will say it will come in a couple of few weeks rather than months’.

Ghana successfully issued a third Eurobond yesterday which was oversubscribed.

Ghana received a subscription of 2.9 billion dollars as against the 1 billion expected.

Economic challenges
Some economists had projected that the country’s current economic challenges would lead to a low subscription and a high interest rate on the bond.

Ghana’s economic challenges has been enormous this year.

The cedi has depreciated by more than 30 percent this year alone against the dollar, coupled with a high budget deficit, leading to government revising its budget deficit target this year.

There have also been an erratic supply of power to industries and households, hikes in inflation, utility tariffs and prices of petroleum products among others.

Inflation currently stands at 15.9 percent, this figure is likely to move up by year end.

These challenges coupled with a number of others led to government postponing the issuing of the bond a number of times.
But Finance Minister Seth Tekper tells Citi Business News the country presented a good story to investors, hence the oversubscription.

According to him, most of the current challenges are short term ones while the long term challenges are being tackled.
‘ We have been consistent in saying that the challenges that we were going through in particular the power crisis which came primarily because of supply in gas supplies. Secondly the performance of gold and cocoa prices and against other setbacks such as the low rate at which were
getting the grants over the last three years were all issues which are seasonal in nature and accidental in a case of the power disruption.’

‘Therefore we have always believed that even though we struggled to make the home-grown measures to turn around the economy immediately tells us that within 2-3years, with very good measures the economy will turn around. We have seen this already happening, coincidentally we saw COCOBOD sign the $1.7b for the cocoa purchases which represents a significant improvement from last year’s. That is also a strong picture we have painted for the market, that we do acknowledge the setbacks for the market.’

‘First of all we have our own strong measures, and secondly, we are going to enhance those strong measures further, when we begin negotiations with the IMF.

Yield on 2014 Eurobond
Ghana’s rate for yesterday’s issue was higher than the rate of 7.875 issued on the same amount last year.
Yesterday’s USD1 billion bond has a twelve (12) year maturity, with a coupon at a rate of 8.125% and matures in 2026.

The rate is much higher than that of other African countries which have issued bonds this year.
Ivory Coast, which is the world’s largest cocoa producer, for example raised $750 million from its 10-year Eurobond bond sale this year and paid less than 6 percent at 5.625%.

Ghana issued its first Eurobond, a 10-year Eurobond seven years ago at which she raised US$750million from investors at a coupon of 8.5 percent.

Some economists say despite the high rate, which was inevitable, considering the country’s current economic challenges, a much lower rate should have been pushed for.

But Seth Tekper tells Citi Business News the rate is a good one.

‘We are getting a good rate. First of all there is a setback that the Ghanaian economy has been through. It is not always the size, it is a billion. In some cases it is 500m. As the size increases, usually the yield, you know… Definitely, let’s look at our own record. Ghana’s record as I said last year as against this which is expected to be recovering, we did slightly below 8% for $750m. Even at the peak of money being available when we issued our first bond, it is during the global financial crises when the markets were really upbeat, and we could only do 8.5% for a similar $750m. Yes, we could have hoped for a better deal, but I think we have come out strongly. A lot of experts thought investors will not give Ghana a chance in terms of the amount. You know we did not do a liability management which is to exchange the 2017 bond. It is the context that we have to look at.

Eurobond cash disbursement
Government intends to use proceeds from yesterday’ s Eurobond to fund capital expenditure in the 2014 Budget.
It will also be used as counterpart funding for pipeline projects and the refinancing of domestic and external debt.
Government has however over the years received some backlash over how such proceeds are disbursed, with critics saying a majority of such funds are not used for their intended purposes.

Seth Tekper however assures the funds will be used for their intended purpose.

Cedi Stabilization
The cedi has depreciated against the dollar by about 30 percent this year alone.
Finance Minister Seth Terkper believes the Eurobond inflows as well the cocoa loan syndication would help the cedi to stabilize which has depreciated against all the major foreign currencies.

‘ In the case of the cocoa revenue, you know it is direct, because a substantial amount of almost all the cocoa purchase are done in cedis. We have always said that cocoa is the main source of foreign exchange together with gold which not performing very well this time. In addition, to the time and purpose of issuing the cocoa loans as we have done since 1993/94 is to make sure that the farmer is paid promptly and is motivated. The purpose of the sovereign bond is not primarily to generate foreign exchange, but that is the secondary objective that it will achieve because our own financial markets are not big enough to raise even cedi component of what would have been at current exchange rate of 3billion Ghana cedis if we do straight 3 to 1, then it means that any component of our expenditure which we need will make foreign exchange resources available’ he said.


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