Ghana’s Soverign Bond

Story: Boahene Asamoah

AN Executive Director of Strategic African Securities (SAS), Ms Abena Amoah, has said that the country must make good its financial obligations under the sovereign bond to sustain investor confidence and justify further forays into the international capital market.
In an interview on the implications of the country’s successful sourcing of $750 million eurobond on the international financial market, Ms Amoah stated that “meeting our obligations would enable the country to go for more funds for our development agenda.”
Ghana raised $750 million through an eurobond in London on September 27. The country intends to apply the funds into the energy and transportation sectors as part of its efforts to bridge the infrastructural gap.
The entire loan would be retired with the final interest paid on October 4, 2017.
The Ghana eurobond traded the day after its issue at $101 above the par value of $100 compared to Turkey, which traded below the par value three days after its issue. The Turkish bond was issued three days ahead of the one by Ghana.
Ms Amoah, an astute financial analyst, stated that “it is a good foray”, but cautioned that “it is not all sweet and perfect, but a pure commercial transaction.”
She said since issues of debt forgiveness and cancellation did not apply on the international financial markets, the country needed to show its commitment by rigidly making its payments on time.
She said the overwhelming response to the oversubscription of the sovereign bond was an indication of investor confidence in the country.
Ghana, which went on the international market for the first market time, saw its sovereign bond denominated in the dollar, oversubscribed by over 400 per cent, amounting to $3.7 billion.
Ms Amoah stated that many factors also contributed to the oversubscription which included the strong macroeconomic performance of the economy and the general favourable outlook for the economy.
Cocoa and gold prices, the two main foreign exchange earners for the country, have seen considerable price appreciation on the international market, hitting almost all time record. Cocoa and gold prices are now $942 and $772 respectively as of today.
Additionally, she mentioned investors appetite for new instruments following the falling of the United States interest rates on a 10-year government bonds to 4.61 per cent as of September 29.
Ms Amoah said offering investors an investment instruments with an interest yield of 8.5 per cent on a 10-year eurobond was also a very attractive offer, adding that the country’s B+ rating and the recently announced oil discovery were both contributory factors.
She added that the implications of the oversubscription were that private fund managers were increasingly looking at emerging markets such as Ghana to invest their funds.
Ms Amoah commended the team that went on the road show for selling Ghana and its performance over the past years.
The government has indicated its intention to use the funds in two major areas of the economy.
The energy and transportation ministries have begun the process of using up to $375 million from the $750 million eurobond proceeds this year for expansion and upgrade of infrastructure.
The energy sector will use about $200 million for rehabilitation and upgrade of generation, transmission and distribution, while the transportation ministry will also utilise the rest for road construction, particularly the 200-kilometre stretch of the Ofankor-Kumasi Highway, a dual carriageway.
Analysts say the country needs over $300 million annually over the next few years to finance its infrastructural gap in the areas of energy, water and transportation, and that funds from development partners were woefully inadequate if such infrastructural challenges must be overcome.