Business News Mon, 17 Oct 2016

Better incentives influenced success of local dollar bond - Economist

Economist, Dr. Eric Osei-Assibey has attributed the successful issuance of the country’s first local dollar denominated bond to better incentives it provides to investors.

Government last week raised a total of 94.6 million dollars at a rate of 6.0 percent with a maturity term of two years.

Even though government targeted 50 million dollars, total bids were 99.6 million dollars while government accepted 94.6 million dollars.

Speaking to Citi Business News, to explain some factors that may have urged investors to heavily participate in the bond, Dr. Osei-Assibey was of the view that the bond provided better incentives for inventors with dollar accounts in the country.

According to him, it made business sense to investors in the country to move their dollar accounts into the bonds since it generates no interest when kept as an account.

“It provides better opportunities and incentives for people who have dollar deposit account. If you have dollar deposit account or forex account usually you don’t get that kind of return. The returns that the bank gives you many of the banks don’t pay anything”

By this, he explained that the bond provides an alternative income for people who have dollar account.


“That might be the reason because many banks, many financial institutions and even individuals have quite some amount of dollars in their account and they are not receiving any returns, they are just idle , so this provides a great source of investment for many of these banks,” he noted.

He added that the maturity period for the bond was also a major factor sine it provides short term facility for investors.

“It’s not a long term investment and it provides some kind of liquidity for many people. Two years is not too long and it may come very soon. In that sense getting it at 6 percent you will not get it anywhere else in the world at this time,” he stressed.

Proceeds of the bond

Meanwhile, the Finance Ministry in a press statement copied to Citi Business News explained that the proceeds of the bond will form part of the sinking fund to buy back some of the high coupon instruments on the local and international capital market as part of government’s liability management strategy.

The statement added that government will explore the advantages of this type of instrument as an alternative source of funding, to finance the dollar component of future budgets.

Source: citifmonline.com