Ghana will today, Tuesday, February 4, accept bids from investors for its US$3 billion Eurobond after the successful completion of a week-long roadshow in Europe and the United States. A government delegation led by the Finance Minister, Ken Ofori-Atta, brought their roadshow, which had seen them interact with investors from Europe and North America, to a close on Monday, February 3, 2020. The government will be looking to receive favourable bids as it marks its eighth appearance on the Eurobond market.
Ahead of the roadshow, Moody’s credit rating agency revised Ghana’s economic outlook from stable to positive — a development which affirms government’s much-touted macroeconomic stability achieved during and post International Monetary Fund (IMF) bailout programme. The announcement will do a lot to assuage the fears of investors regarding the management of the economy post the IMF-era. Sources close to the delegation currently in London say they are confident that the bond will attract yields that are ‘favorable’, preferably below the 8 percent mark.
The last time the government went to the market, it sold bonds in three tranches at various maturities as well as different coupon rates. The three-part deal came with average maturities of seven, 12 and 31 years. The shortest tranche was priced to yield 7.875 percent, while the other tranches were priced at 8.125 percent and 8.95 percent, respectively.
Another reason the delegation is hopeful it could sell one of the best-priced bonds in Ghana’s history is the fact that recently Gabon, another oil-producing nation rated Caa1 with a positive outlook, issued a 5-year bond which attracted yields below 7 percent. Ghana’s Moody’s rating is a notch above Gabon’s, which means the West African nation is better off.
The recent rating announcement by Moody’s means the rating agency is optimistic about the direction of the macroeconomic, and its hopeful measures being taken will get better. A positive outlook also lowers the risk of long-term debts that Ghana may issue over the medium-term such as this year’s Eurobond. The country’s last appearance on the Eurobond market in 2019 saw a return of an average 8.311 percent in coupon rate. Given that the other macroeconomic indicators such as the deficit, inflation, among others, have trended in the right direction, the delegation will be hoping the bids submitted on Tuesday reflects the confidence they have in the managers of the economy. It is also expected that the 2020 bond issuance, like the 2019 appearance, would come in various tranches.
The funds raised from the Eurobond sale will be used to execute the 2020 budget, and also go a long way to shore up the foreign reserves of the Bank of Ghana, which would have more dollars to intervene in the currency market should the need arise. Already, the cedi has emerged stronger against the US dollar with the local currency emerging as the best performing currency against the dollar in the 140 currencies tracked by Bloomberg between January and February 3, 2020.
Impact on public debt
According to the Bank of Ghana’s Summary of Economic and Financial Data, the country’s total public debt stood at GH¢214.9 billion as of November 2019, representing a 62.1 percent debt to GDP. The bond issuance, although not clear how much will go into refinancing of existing debt, will contribute to increasing debt depending on how much of the US$3 billion turns out to be fresh issuance.
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