Ghana issues maiden dollar bond on local market

The government last week trapped additional foreign exchange into its vault when it issued a United States dollar-denominated bond on the local market to raise a total of $94.64 million at a coupon rate (interest rate) of six per cent.

The offer attracted a total of 26 bids from resident investors only with a face value of $99.64 million. This represents a 5.28 per cent over subscription and the coupon rate was within the government’s initial price range of between 5.5 per cent and 6.5 per cent.

It is the first time the government has issued a foreign currency denominated bond on the domestic market and analysts believe such as a move is important to provide a benchmark yield curve for the market, while making available more foreign exchange to keep the cedi stable.

“On settlement, this two-year bond becomes one of our country’s lowest yield bonds aside from the 2017s which are currently trading at about 5.45 per cent and maturing in less than a year,” a statement issued by the Ministry of Finance said.

According to the ministry, proceeds of the bond would form part of the sinking fund established by the government to repurchase or redeem specified debts. The proceeds would therefore be used to buy back some of the high coupon instruments on the local and international capital market as part of the debt (liability) management strategy. 

“Going forward, the government will explore the advantages that this instrument type presents as an alternative source of funding to finance the dollar component of future budgets,” the ministry said. 

Debt strategy

The government is pursuing a strategy to restructure the country’s debt, part of which includes issuing long tenor debt instruments to replace shorter term ones. In some instances, the government buys back some of its bonds which may be trading at lower coupons.

“The issuance of this bond gives further impetus to the government’s Medium-Term Debt Management Strategy, which among others focuses on minimising and/or replacing expensive shorter dated instruments with longer dated issuance.” 

“It also provides a positive boost to the development of our domestic debt market by introducing a new investment instrument for institutional and individual investors,” the statement explained.

The government believes the successful issuance of the bond, evidenced by the generally high subscription and the favourable pricing, “is a reflection of the returning confidence in the Ghanaian economy and further confirms Ghana’s bright medium-term prospects”.

Ghana’s credit ratings

Recently, international credit rating agencies have revised Ghana’s ratings favourably. Moody’s revised the outlook on Ghana’s Long-Term Bond Ratings from negative to stable and affirmed the rating at B3.

Moody’s cited significant fiscal deficit reduction and success in implementing structural reforms over the past year as well as reduced government liquidity risk on the external side, following the issuance of the $750 million Eurobond, the proceeds of which are earmarked for debt repayments, as some of the key drivers for the stabilisation of the rating.

Standard & Poor's also kept Ghana’s rating at B-, but with a stable outlook, up from the negative outlook it previously assigned the country.