The country’s first 10-year Eurobond in 2007 attracted a coupon rate of 8.5 percent, but the yield for the next one is likely to be lower because of the prevailing low international interest rates, Bank of Ghana (BoG) Governor Henry Kofi Wampah told B&FT, adding that details of the size, tenor, purpose and time of the sale will be revealed in the coming weeks.
Bloomberg news service has however reported that around US$1billion will be targetted in the sale, citing people with knowledge of the transaction.
“We want to take advantage of the low interest rates. We’re looking at rates that are lower than what we paid in 2007,” Dr. Wampah said on the sidelines of the launch of the International Monetary Fund (IMF)’s Regional Economic Outlook for sub-Saharan Africa in Accra yesterday.
The bond is intended to restructure the public debt, reduce the interest burden on the budget and provide funds to finance critical infrastructure projects. But it is being mulled at a time of recovery from severe fiscal deterioration following the election-driven budget overruns in 2012.
Dr. Wampah nevertheless insisted that the timing is right because of the lower yields in the market, which could begin to rise if the economic recovery in advanced countries firms up.
“Investors don’t only look at the current situation; they also look at what policies you have for the future,” he said in an answer to whether Ghana’s present fiscal challenges would derail the bond.
Government has said the budget deficit -- which became the source of much anxiety after it rocketed to 12 percent of GDP last year -- will be narrowed to 6 percent of GDP in the medium-term, after it’s been trimmed to 9 percent this year.
Fitch Ratings has already cut the outlook on Ghana’s B+ sovereign rating to negative from stable on the back of the blown-out deficit and persistent wage-expenditure pressures. In 2007, Fitch rated Ghana B+ with a positive outlook ahead of floating the first Eurobond.
Dr. Wampah said the credibility of policies to achieve fiscal targets and stabilise the cedi “is what investors will be looking for”.
There is a need to refinance some of Government’s debts, including the 2007 Eurobond, he said, and part of the proceeds from the next sale will be used for that purpose.
Seán Nolan, Deputy Director of the IMF’s African Department, said Ghana should factor in foreign exchange risks as it prepares to sell the bond, and weigh this option against other possible ways of raising funds to finance infrastructure.
A sliding domestic currency has the effect of increasing the cost of servicing foreign-denominated debt such as a Eurobond, and Ghana’s cedi has taken significant exchange losses since the first half of 2012.
Strong import demand and dollar flight as companies repatriate dividends to offshore shareholders have continued to weaken the cedi in 2013, triggering losses of more than 3 percent to the dollar, on top of 17.5 percent depreciation in 2012.
Policies to stabilise the currency, including the tightening of interest rates and changes in how banks hold foreign currency reserves, will not be relaxed due to the pressures, Dr. Wampah said.
Source: Business & Financial Times
