Let’s be circumspect in discussing $2bn bond — FirstBanc MD

The Managing Director of FirstBanC Financial Services, Mr Amenyo Setordzie, has asked for circumspection on the discussion around the US$2.25 billion bond issued earlier this month.

That, he said, was needed to ensure that public commentary on the 15 and 10-year bonds did not return to hurt the economy and the country’s reputation.

While dismissing concerns that the coupon rate of 19.75 per cent for the US$2.25 billion bonds was too punitive, Mr Setordzie said the issue of conflict of interest did not arise, given the familiarity of the lead investor, Franklin Templeton Investments (FTI), and one of its directors, Mr Trevor Trefgarne, with the country’s bond market.

In an interview with the Daily Graphic, the FirstBanC MD recalled that FTI had, in 2013, reported that its exposure to dollar-denominated Ghanaian bonds had contributed positively to the performance of its emerging market bond portfolio in the first quarter of that year.

 “This implies that Franklin Templeton already held Ghanaian bonds even before the 2013 Eurobond issue, most likely the 2007 issue.

“As a result, its participation in the latest issue is not a novelty and should not be misconstrued as such,” he said.

Conflict of interest

His comments come on the back of a raging debate between the Minority in Parliament and the government over the sale of 10 and 15-year bonds that yielded US$2.25 billion in total.

Although the 15-year bond was a novelty, the 10-year one was the second of its kind, after a maiden one was issued in November last year at a coupon rate of 19 per cent.

Given that FTI took about 95 per cent of the entire bond issued, the Minority said the government, through the Ministry of Finance, had intentionally skewed the transaction to favour the US-based investment firm and its non-executive director, Mr Trefgarne. Mr Trefgarne has a past working relationship with the current Finance Minister, Mr Ken Ofori-Atta.

The Minority, through its members on Parliament’s Finance Committee, further described the coupon rate of 19.75 as too high, using the current economic conditions, previous bond rates and global investor sentiments on the country as bases.

The FirstBanC’s MD, however, said such comparisons were needless, given the dynamics in the bond market.

Using the maiden 10-year bond and its coupon rate of 19 per cent as bases, Mr Setordzie said the 19.75 per cent coupon rate for this year’s 10-year bond represented a fair deal under the circumstances.

“Since investors almost always demand a maturity premium for longer-term debt, it is reasonable to expect that bonds issued at a longer maturity than last year’s 10-year would require a higher yield. Thus, the 19.75 per cent on the 15-year is appropriate, although one could not say the same for the seven-year.

“In addition, the comparison to 2016’s 10-year dollar bond is unfortunate, since yields on bonds denominated in different currencies are not directly comparable,” he said.

He also disagreed with concerns that the bond issue required Parliamentary approval, citing the domestic nature of the transactions.

He said the bond issues, which were denominated in Ghana cedis, were domestic bonds despite the participation of foreign investors in the transactions.

“Although the significant proportion of the bonds taken up by foreign investors may expose the nation’s economy to exchange rate pressures when those investors decide to sell off and repatriate their holdings, these concerns are economic in nature, and do not represent a contravention of Ghana’s statutes,” he explained.

FirstBanC’s concerns

These notwithstanding, Mr Setordzie said the inability of the Ministry of Finance to organise investor presentations similar to those held in the past to gauge investor expectations three days to the deal begged for answers.

“For a transaction of this size (GH¢4.8bn), the Ministry of Finance and the book-runners could have engaged and courted the interest of institutional investors like pension funds, partly, in order to establish market-based initial pricing guidelines,” he said.

This, he believed, could have helped avoid the recent debate over the entire issue.

As a result, Mr Setordzie advised that the Ministry of Finance and the book-runners ensure that market sentiments are reflected in the pricing of bonds by allowing all interested investors ample time to make bids for the country’s debt securities whenever future bonds are to be issued.