International capital markets reaffirm confidence in Ghana, as bond issuance results in order book five times the required amount Featured

By Business Desk February 05, 2020 4287 1233 comments

On Tuesday, Ghana became the first ever country on the African continent to issue a 41-year bond as the West African country successfully raised US$3 billion on the international debt capital markets.

The capital markets reaffirmed their increasing confidence in the Ghanaian economy when the West African country’s 2020 international bond issuance resulted in an order book five times the amount required on 4 February 2020. This bond issuance comes two weeks after the international ratings agency Moody’s gave a resounding vote of confidence in the country’s economy with a positive outlook.

Following a three-day roadshow with a series of fixed-income investor meetings in New York, Boston and London, Ghana issued a second tri-tranche Eurobond transaction under its International Capital Markets Programme.

The transaction comprised $1.25 billion in a six-year Weighted Average Life (WAL), $1 billion 14-year WAL and $750 million 41-year WAL, priced at coupon rates of 6.375 per cent, 7.875 per cent and 8.75 per cent respectively.

Stellar macroeconomic fundamentals

International investors expressed interest in Ghana’s macroeconomic fundamentals following a stellar economic performance, three years after a 2016 economic decline dented the country’s outlook. Growth rebounded strongly from 3.4 per cent in 2016 to 8.1 per cent in 2017 before moderating to 6.3 per cent in 2018.

It may be recalled that in 2016 Ghana issued a six-year Eurobond at 9.25 per cent, compared to Tuesday’s six-year bond at 6.375 per cent: a staggering improvement of 288 basis points.

Three years after the country’s current economic managers assumed the helm of affairs, their prudent management of the economy has attracted positive reviews from the international community.

In May 2017, Fitch affirmed Ghana’s rating at B and revised the outlook to stable, while in October 2018 Standard & Poors upgraded the country’s rating from B- to B with a stable outlook. Moody’s revised the country’s outlook from stable to positive in January 2020.

Growth has averaged 7 per cent from 2017; inflation, on the other hand, fell from 15.4 per cent in December 2016 to 7.9 per cent (new series) in December 2019, the lowest rate in recent times.

The Ghanaian cedi, which has remained relatively stable against the country’s major trading currencies since 2017, appreciated in January 2020 against the US Dollar.

Ghana has institutionalised a number of structural reforms, including a Fiscal Responsibility Act, which caps the annual fiscal deficit at 5 per cent of GDP, to ensure sustainability and the irreversibility of the country’s recent macroeconomic gains.

Order book five times larger than required

Despite concerns over the coronavirus and its potentially adverse impact on market conditions for emerging markets credits in general, a diverse investor base, largely from Europe and the United States, supported Tuesday’s issuance.  This translated into a peak order book, in excess of $15 billion: five times the amount required.

Despite 2020 being an election year, the sterling investor confidence in Ghana has been demonstrated by the competitive rate of 8.75 per cent at which the 41-year WAL tranche, the longest-ever tenor bond issued by an African nation, was sold, compared to a rate of 8.95 per cent on the 31-year bond issued in 2019.

Proceeds from the bonds will support Ghana’s budget for infrastructure, restructuring of the energy and financial services sectors, and a liability management exercise.

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Last modified on Wednesday, 05 February 2020 14:35


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