Parliament Okays $2.5bn Sovereign Bond Issue to Finance Budget

Government has received Parliamentary approval for the issuance of the 2018 Sovereign bonds and Global Depository Note (GDN) to enable it raise some $2.5 billion in total to support the 2018 budget and to refinance and re-profile some existing debts stock of the country.

The Sovereign bond and GDN are expected to yield $1 billion and $1.5 billion respectively to support the 2018 budget and to refinance maturing external bonds (the 2022 and 2023 Eurobonds) whiles about GH₵500 million from the GDN Issue would be used to refinance expensive domestic cedi denominated debt.

Finance Minister, Ken Ofori-Atta in an interview with THE PUBLISHER after the approval disclosed that US$1.5bn Eurobond roadshow is expected to commence by the end of April and plans are advanced on settling on two advisors to assist with the process.

The purpose of a Eurobond he said is for the issuer to access capital markets in other countries or jurisdictions around the world.

According to him, this allows the issuer more options and greater access for raising funds.

“We hope that by the end of April we would have, we already have shortlisted our advisors for the bond and negotiations are going on and by the end of April we should have been successful” he stated.

A report of the Finance Committee of Parliament on the request by government noted that the fiscal impact on the bond observed that the macroeconomic performance achieved in 2017 has strengthened the economic outlook of Ghana.

It noted that the depreciation of the Cedi to the US Dollar was about 4.9percent.

Current spreads on Ghana’s existing Eurobonds have however tightened.

In view of the current impressive macroeconomic performance, government is convinced that the coupon on the new issuance will be highly favourable.

Chairman of the Committee, Dr. Mark Assibey-Yeboah who presented the report stated that Government has also taken note of the declining coupon rates on the domestic coupon rates on the domestic bond market and the recent bond issuances by Nigeria and Kenya and is satisfied that a Eurobond issuance will register a competitive price compared to the domestic bonds.

The report quoted the 2018 Budget Statement which made provision for the raising of sovereign bond of U$1billion as well as a possible refinancing of the existing bonds.

Government has also targeted to engage further buyback and bond exchange operations to save Government some interest cost on existing Eurobonds and to re-profile expensive bonds issued between 2015 and 2017 at an average yield of 24 percent.

Expected use of Bond Proceeds

 The 2018 bond proceeds are expected to used on specific areas of expenditure including: Irrigation infrastructure, the rehabilitation of warehouses and silos, fisheries and aquaculture inputs and infrastructure, education infrastructure, health infrastructure, road infrastructure and rail infrastructure.

Request exceeds $1billion

 The Committee’s report as presented by its Chairman observed that the proposed financing request exceeds the US$1billion indicated in the 2018 Budget.

This was however explained that the additional amount is mainly due to government’s intention to raise more resources for liability management to manage the risk and cost associated

with the impending maturities over the 3-year period from 2021- 2023 which is expected to exert severe pressure on the fiscal space.

The overall net addition to the country’s debt stock is expected to be US $1billion as stated in the 2018 Budget statement.

By: Christian Kpesese/ thePublisher