Ghana’s 2014 Eurobond will be issued as planned, Minister of Finance Seth Terkper has told the B&FT, in a strong denial of reports suggesting the bond could be scrapped.
The Ministry of Finance is going through the preparatory steps to market the bond and received approval this week from the Public Procurement Authority (PPA) to appoint transaction advisors, he said.
Doubts about whether the sale would go ahead increased after reports cited Cassiel Ato Forson, the Deputy Minister of Finance, and other “sources†as saying the bond had been put on hold because market conditions were not conducive.
Asked whether his deputy’s comments were possibly contradictory, Mr. Terkper clarified that Parliament gave approval for the Eurobond to be issued anytime during the year and that the Ministry simply wants to identify the “right window†in the market to launch what will be the country’s third international debt sale.
“Let me emphasise that we are in the capital market to stay,†he said. “But for constitutionality, I would say that we are always on the capital market and will be there forever,†he added, referring to the requirement in the constitution that Parliament’s approval be sought before any form of foreign debt can be contracted by government.
The bond is worth US$1billion for 10 years, but could be scaled-up to US$1.5billion if it is over-subscribed at a favourable price, according to the authorisation given by Parliament. The funds will be used for public investment and to refinance maturing debts.
Ghana debuted a 10-year Eurobond seven years ago after enjoying macroeconomic stability and debt-forgiveness between 2002-07. The issue, which raised US$750million from investors at a coupon of 8.5 percent, made Ghana the first nation in sub-Saharan Africa after South Africa to borrow from international capital markets.
The government issued a second 10-year bond in July 2013 to raise US$750million in cash and US$250million in a buy-back of the 2007 issue. But analysts said the yield of 8 percent on the bond -- compared to 5.63 percent and 6.63 percent on bonds sold by Zambia and Nigeria respectively in the 12 months to Ghana’s sale -- reflected the worsened domestic economic situation, with large fiscal and current-account deficits souring investor sentiments.
Amid the persistence of wide deficits, yields on the July bond have surged higher than 9 percent in secondary trading, giving possible indication of how investors will price a new Eurobond -- especially when global interest rates are rising with the gradual withdrawal of stimulus by the United States’ central bank.
Another factor not in the government’s favour is Fitch’s downgrading of the country’s sovereign rating from B to B in last October, followed by warnings from Moody’s and Standard & Poor’s that they have cut the outlook on their respective ratings from stable to negative.
Weak cedi
As the cedi weakens, so does the cost of servicing foreign debt; meaning the effective interest rate in cedis on last year’s Eurobond, for instance, is now between 25-30 percent due to the rapid slide of the currency.
The Bank of Ghana (BoG) has responded robustly to the cedi’s alarming decline and will probably affirm a tight interest-rate stance when it meets next week, after February’s 200 basis-point increase that took the policy rate to a four-year high.
Former Deputy Governor of the BoG Dr. Mahamudu Bawumia on Tuesday joined critics in questioning the efficacy of the central bank’s controls on foreign exchange transactions -- saying they will hurt confidence rather than rein-in depreciation.
He also forecast that the cedi will remain unstable unless weak economic fundamentals are addressed.
Other financing options
The Eurobond is a key element of government’s debt programme for 2014, and the funds have been tied to several capital projects named in the budget.
Mr. Terkper however said government has flexibility in choosing its deficit-financing options, and is not bound to utilise any one of them. “Government can borrow directly from abroad or domestically to satisfy its debt requirements,†he said.
By Leslie Dwight Mensah | B&FT Online | Ghana
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