In the face of stagnant interest rates on government’s domestic debt securities and falling coupon rates being negotiated on the fixed deposits being taken by banks, institutional investors are now looking towards impending new corporate bond issuances to keep their interest income up.
There are GH¢4.44 billion worth of corporate bonds from nine companies approved by the Securities and Exchange Commission and the Ghana Stock Exchange, awaiting issuance on the Ghana Fixed Income Market, GFIM, under shelf registration.
While it is still unclear when each company will issue the bonds approved for issuance – this will be done in tranches – institutional investors in particular are increasingly seeing them as preferred financial instruments for their respective investment portfolios.
The companies already with regulatory approval for issuance of new bonds are: AFB Plc with outstanding issuance of GH¢12.93 million; Edendale Properties Ltd GH¢17.35 million; Bayport Financial Services GH¢191.16 million; Ghana Home Loans GH¢361 million; PBC Ltd GHc 37.70 million; ESLA Ltd GH¢3,569.54 million; Bond Saving and Loans GH¢29.6 million; Quantum Terminal Ltd GH¢95 million; and Dalex Finance Company GH¢130 million.
Investors are now looking towards these impending bond issuances because of the significant risk premiums they will offer, over both government debt securities and bank fixed deposits.
Currently corporate bonds offer coupon rates of up to 22.97 percent, compared with similarly tenured government bonds (three to five years tenor) which offer well below 20 percent. Shorter term government treasuries offer between 14 and 16 percent.
Similarly, interest rates on fixed deposits, as at April, were on average between 11.50 percent for three months tenor and 14.70 percent for one year tenor. Actually, new placements are liable to offer even lower rates as banks respond to the recent agreement to lower their lending rates by 200 basis points while the COVID-19 pandemic afflicts the country.
Crucially, although, corporate bonds are medium to long term with regards to tenors, the sharp increase in liquidity on GFIM means that bond holders can exit their investments whenever they choose since buyers are generally readily available. This means investments can be kept as short as for shorter term government debt securities and bank fixed deposits. In June alone, 855,773,838 corporate bonds were traded on GFIM in 1,254 transactions.
Just as importantly, even though corporate bonds are riskier than government securities, the companies with prior approval for new issuances are widely regarded as safe investment bets. Indeed most of them have already issued some tranches of their approved bonds and have not defaulted on any interest or principal payments so far.
Some of them, such as Lethsego Savings and Loans and Bayport Finance have strong credit ratings with South Africa based Global Credit Ratings, whose ratings of African corporate bond issuances are well respected by both Ghanaian indigenous and international investors.
Indeed, between them, and with the addition of GHc80 million in bonds issued by Izwe Savings and Loans, the corporations with approval to issue new corporate bonds have already issued GHc7.656 billion worth of bonds on GFIM without any hiccups for investors so far.
Besides, applications to issue corporate bonds are closely scrutinized by both SEC and the GSE, neither of which are as yet willing to see below investment grade debt securities listed on GFIM.