Government gets approval to raise ¢2.5 billion in Eurobond, Sovereign bond sale

Business News of Saturday, 24 March 2018

Source: Myjoyonline.com

2018-03-24

Finance Minister, Ken Ofori-Atta

Government has secured parliament’s approval to raise up to $2.5 billion in Eurobond and Sovereign bond sale.

This was after parliament approved the report from the Finance Committee to aid the funding raising exercise.

Breakdown of the fundraising

The documents sighted by JOYBUSINESS showed that;

$1 billion would be used to finance the 2018 Budget,

$1.50 billion to refinance maturing external bond that is the 2022 and 2023 Eurobonds,

About GH¢500 million from the GDN issue to refinance expensive domestic credit dominated debt.

Timelines

According to government, it is planning to issue the bonds before the close of April 2018 in order to enjoy the current favourable market conditions.

Background

The 2018 budget approved by parliament last year indicated that its intention to raise up to $1 billion from the international capital market to finance capital expenditure.

It also stated that government will further access the international market for liability management operations such as buybacks and bond refinancing to re-profile external debt, extend tenors and reduce associated refinance risks.

Since 2007 Ghana has issued 5 Eurobond on the International Capital Market.

The maiden 10-year bond which was issued in October 2007 was paid off on October 4, 2017. This has reduced the number of outstanding four Eurobonds.

At the end of December 2017, the outstanding balance of the four Eurobond stood at $3.6 million, compared to the $3.7 million in December 2016, representing a difference of $70 million, representing the amount that was brought back on the 15-year 2030 Eurobond.

Government also intends to issue the 2018 sovereign Bonds and Global Depository Note to enable it to support the 2018 budget and to refinance the profile some of the existing stock, according to Government.

The finance committee of parliament was of the view that government intends to take advantage of the current low yields averaging 16.5 percent to refinance expensive bonds used between 2015 and 2017 at an average yield of 24 percent.

Diversification of the Bond Portfolio

According to the finance committee, the sovereign bonds will include regular Eurobond, as well as Panda, Green and or Samurai bonds depending on market conditions.

A Panda Bond is a Chinese Renminbi-Denominated bond from a non-Chinese Issuer, sold in China.

The Internationalization and acceptance of the Chines RMB as tradable currency is expected to lead to the growth of the panda bond in the medium term and hence Ghana.

A samurai bond is a yen-denominated bond issued in Tokyo by non-Japanese issues, providing the issuer with access to the Japanese capital.

The finance committee was of the view that the offshore RMB and yen Proceeds can give Ghana the RMB/YEN balance sheet to reduce the mismatch in external currencies.

Use of the bonds

According to government, it is planning to direct the funds to these areas, Irrigation infrastructure, Rehabilitation of Warehouses and Silos, Fisheries and Aquaculture Inputs, Education Infrastructure, Road Infrastructure, Rail Infrastructure

Issuance of GH¢500 million Global Depository Notes

According to the Finance Committee of parliament Government also indicated that it wants to take advantage of the declining domestic coupon rates to issue a conditional Global Depository Note.

This is a debt security which will be accessed and settled in US dollars but denominated in Ghana cedi.

This instrument would be listed London and be available to international investors who wish to invest in local bonds but are unable to do so due to operational limitations and mandate restrictions.

The finance committee of parliament was of the view that, the Global Depository Notes would give Ghana the opportunity to diversify the pool on non-residents who participate in the local bond market.

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