Eurobond coupon could’ve been lower - Wampah

The coupon on Ghana’s recently sold Eurobond could have been lower -- but for the country’s macroeconomic problems and comments by the US central bank which pushed up global interest rates, Bank of Ghana (BoG) Governor Henry Kofi Wampah has said.

Ghana successfully issued its second 10-year US$750million Eurobond on July 25, but the coupon rate of 7.875 percent on the bond was well above issues by sub-Saharan African peers Nigeria, Rwanda and Zambia in the past 12 months.

The yield on Ghana’s bond (the yield calculates the returns based on movements in the price or market value of the debt as opposed to a fixed-rate coupon) was 8 percent on the issue date, compared to 6.625 percent on Nigeria’s 10-year US$500million bond sold on July 3.

Weeks before the Eurobond, Federal Reserve Chairman Ben Bernanke had hinted of a possible deceleration in the Fed’s bond-buying programme, known as quantitative easing, which increased the likelihood of higher interest rates in future.

“The announced slowdown in quantitative easing by the Fed (the US central bank) raised bond yields, and the timing of our own Eurobond meant that it was affected,” said Dr. Wampah in an interview with the B&FT after the BoG’s monetary-policy committee had left its benchmark lending rate at 16 percent last Wednesday. “I do not deny, though, that our own macroeconomic challenges affected the interest rate on the bond. Nigeria’s bond attracted a lower coupon because they have a lower deficit, substantially more reserves and a better rating.”

An additional amount of US$250 million will be sold in a partial buy-back of Ghana’s first Eurobond due to mature in 2017, raising the size of debt issued to US$1 billion in this second foray into international capital markets.

Dr. Wampah said he is yet to be apprised of details of the buy-back, but Cecilia Akwetey, Head of Public Relations at the Ministry of Finance, told the B&FT that all transactions related to the bond sale, including the buy-back of the previous bond, will be concluded today -- following which the Ministry will furnish the public with full details.

The expenditure of the bond will comprise US$387million for capital projects, 73 percent of which will be executed in the 2013 fiscal budget, and US$363million for refinancing maturing domestic debts -- mostly on the short-term end. The macroeconomic challenges Dr. Wampah referred to are mainly the significant fiscal and current-account deficits of 2012, which have been greeted with disappointment by most international investors and analysts.

Fitch Ratings rated Ghana’s Eurobond B+, affirming its B+ sovereign rating -- the outlook on which it lowered from stable to negative in February after the official disclosure of the gaping fiscal hole of 12 percent of GDP in 2012 (now revised to 11.8 percent of GDP).

While wage demands continue to weigh on government’s aim to narrow the deficit to 9 percent of GDP, the fall in the prices of gold, cocoa and oil threatens plans to reduce the current-account deficit as well, which rose to 12 percent of GDP in 2012.

The upside for the economy remains the expected robust growth of 8 percent this year, dampening part of the anxiety over Ghana’s mounting debt profile which has risen rapidly from 31 percent of GDP in 2008 to 44 percent of GDP as at June 2013.