Time for long-term bonds – Andani




Ghana should move to selling long-term bonds to investors, but it must get certain “parameters” in place first in order for the bonds to be successful, Alhassan Andani, Chief Executive Officer of Stanbic Bank, has told B&FT.

He said investors have a strong appetite for bonds of at least 10 years tenor; but to attract them, it is necessary to keep inflation in check and maintain a stable currency.

“All the Government of Ghana bonds have usually been oversubscribed. What is important is that certain critical variables need to be in place and well-managed for long-term bonds to succeed. Inflation must be tightly controlled; and because we have lots of foreign participants, the foreign exchange must be fairly stable,” he said.

Ghana’s inflation climbed to 10.4 percent in March, and the cedi has weakened by more than 2 percent this year on top of 17.5 percent depreciation in 2012. The Bank of Ghana has boosted yields on Government debt in attempts to rein-in the cedi’s losses, causing Government’s three-month borrowing costs to soar from around 10 percent in the first quarter of 2012 to 23 percent presently.

Finance Minister Seth Terkper said in March that Government plans to increase the tenor of its bonds and create an infrastructure fund from the oil revenues to cut the reliance on short-term borrowing for investment.

“We are in consultations with the World Bank and African Development Bank to get partial-risk guarantees so that we can issue longer-tenor bonds. And since much of this borrowing is offshore, it will ease the liquidity pressure on the domestic market.

“The infrastructure fund that we have proposed will also assure the market that there’s a regular flow of funds to service the debt,” he said. He also told B&FT last year that Government would consider the possibility of selling a Diaspora bond of long-tenor to raise resources for infrastructure.

Apart from the debut 2007 Eurobond, most debt sold by Ghana has had a maximum tenor of five years, and offshore investor interest has been strong. Ratings agency Fitch, which rated Ghana’s creditworthiness B+ before its first Eurobond six years ago, has warned it could downgrade the country’s debt due to concerns about the severe fiscal slippage in 2012. Ghana’s last three- and five-year bonds sold at 16.9 percent and 23 percent respectively.

The main concern of the market now is the weak expenditure management that caused the fiscal deficit to swell to 12 percent of GDP last year, as well as the significant financing gap expected in 2013 — which is likely to keep interest rates high, said Databank in a report last week.

Mr. Andani said interest rates will remain high, and “the bond market will see more activity, probably with the introduction of corporate bonds”.

He said for banks, the increase in infrastructure projects will boost their project-financing business, adding that the outlook for the industry this year is “strong”.

“The outlook for this year will still be strong, and the interest rate regime will remain high. If you look at the private sector-driven construction industry, it still looks strong judging from the cranes ruling the skylines of Accra and Kumasi.”

He said banks’ lending rates remain high because of the jump in Treasury bill rates, which is a main cost-of-borrowing benchmark for the industry.

“We the banks don’t want to give out loans at high interest rates because if the companies are forced to take them and they cannot pay, it creates bad assets. So we need to ensure that interest rates come down.”

He said Stanbic Bank wants to be “the number-one player” in the banking industry, leading in delivery of the best and most innovative financial intermediation for individuals and businesses.

“Our brand has been in Africa for 150 years, so we believe that we have the tradition and understanding of the continent.

Other banks will come to operate in Africa, but they have probably a bigger market in America or Europe; but ours is in Africa, so any opportunity to ensure that we have the right partners to work with, we will examine it critically.

“This is a good market. Ghana remains one of our key markets and we are driving strong business in our key markets of Ghana, Kenya, Nigeria and Angola. These are the big growth markets the group is paying close attention to. We will grow organically, but we will pursue inorganic means of growth as well.”