Ghana puts ice on 4th Eurobond sale

Ghana has had to scrap its 4th Eurobond sale in as many years after investors virtually rejected the bond by demanding astronomic rates amid concerns on the health of the economy.

A statement issued by the Finance Ministry announcing the scrapping of the Bond stated, “the Government will continue to build on this dialog with international investors while monitoring the markets and the IMF Board process with respect to the Third Review of the Program and will issue new notes at the optimal time and the right conditions.”

The respected Bloomberg financial journal, only yesterday raised issues about the high rates investors were demanding for Ghana’s bonds despite a general fall in the rates of other bonds issued by other countries in Sub-saharan Africa.

“The cost of floating the bond looks prohibitively expensive,” Celeste Fauconnier, Nema Ramkhelawan-Bhana and Neville Mandimika, analysts at Johannesburg-based RMB, said in a note on Tuesday according to Bloomberg.

“The risk of debt distress remains high. We do not believe the faith in the market is strong enough” to prevent an expensive transaction, the RMB analysts said.

Reporting on the scrapping of the Bond, Bloomberg disclosed that it was down to investor rejection of the Ghana Bonds and the high rates investors demanded.

“Ghana scrapped plans to sell its fourth Eurobond in as many years, balking at the price investors demanded amid concern that the West African nation may relax its commitment to fiscal targets ahead of parliamentary and presidential elections”, the report said.

“It’s not an entire surprise,” Nicolas Jaquier, an emerging-markets economist at Standard Life Investments Ltd. in London, said by phone. “The timing of the new issue was a bit puzzling, coming to issue a bond just before some of the pending issues with the IMF were being ironed out. That’s what kept many investors away”, Bloomberg quoted.

“It is 30 percent pricing and 70 percent bad timing,” said Richard Segal, an analyst at Manulife Asset Management, who attended an investor meeting on Monday and who was also quoted by Bloomberg. “Investors asked more than they were willing to pay.”

Ghana’s IMF Programme is currently on the rocks after the failure of the Fund to present the third review of the Programme to the IMF Board and the government’s decision to reject a proposal to enact a zero Central Bank financing law; choosing instead to limit Central Bank financing to 5% of the previous year’s revenues.

It will be recalled that NPP Vice-Presidential Candidate, Dr. Mahamudu Bawumia, in May this year, warned the government against going for another Eurobond citing the high rates it could come at and the current state of the Economy.

“With the debt to GDP ratio at 73%, i.e. beyond the threshold of debt sustainability, what is amazing is that the government wants to issue another sovereign bond of some US$1billion this year to add more to the country’s debt burden. My humble advice to the government is that “please don’t”.

The last Eurobond was issued at some 10.75% even with a World Bank guarantee! You will only get the economy into more trouble and create more unemployment. When you find yourself in a hole please stop digging!” he stressed while speaking at the Accra Polytechnic on 5th May.