Ghana Sovereign Rating Reduced ....

... by S&P on Deficit, Oil-Regulation Concerns

Ghana’s sovereign rating was reduced by Standard & Poor’s, placing it on par with Kenya, Sri Lanka and Bolivia, because of concerns about large fiscal deficits and a lack of clarity on oil-industry laws.

The West African nation’s rating was lowered to B, five steps below investment grade, with a stable outlook, S&P said in an e-mailed statement today. The assessment is one step below Angola’s B+ assigned in May.

Ghana’s medium-term fiscal deficit target of 2.1 percent in 2011 and 1.6 percent in 2012 is “unrealistic,” London-based primary credit analyst Ravi Bhatia said in the statement. “We expect Ghana’s general government deficit to be around 8.5 percent of GDP in 2010 and to only slightly decrease over the next few years,” Bhatia wrote, referring to gross domestic product.

Ghana expects to pump 120,000 barrels of oil a day by next year when supplies from its offshore Jubilee oil field make it Africa’s newest crude exporter.

“The oil sector may suffer from a lack of clear regulation, and recent moves by the government to interfere with the sale of privately owned oil assets may delay production and may damage investor sentiment,” Bhatia said.

Kosmos Energy LLC, the U.S.-based oil explorer focusing on West Africa, ended its plans for a $4 billion sale of fields in Ghana to Exxon Mobil Corp. after government opposition to the deal. The company said Aug. 18 it will focus on further exploration of Ghana’s deposits.

Timing

The rating reduction is “a bit strange,” with the country due to begin oil production later this year, Samir Gadio, a London-based emerging-markets strategist with Standard Bank Plc, said by e-mail. “A downgrade would have made sense in late 2008 or early 2009 when the fiscal deficit hit 15 percent” of gross domestic product.

Ghana sold its first international bond in 2007, raising $750 million to help fund the construction of roads and power plants. The bid price for Ghana’s 8.5 percent security due October 2014 was $115.26 as of 3:49 p.m. in Accra, data from RBS Financial Markets showed. The security rose 9 cents to $114.92 yesterday, near a record high of $115.41 reached on Aug. 19. The yield fell 2 basis points to 5.9 percent.

Ghana is considering selling its second dollar bond next year to tap investor demand as the start-up of oil production boosts economic growth and narrows the budget deficit, Deputy Finance Minister Fifi Kwetey said on May 25.

Lowering the rating “ will affect inflows into the country and allow foreign investors to demand higher interest rates” on government debt, said Sampson Akligoh, an analyst at Accra-based Databank Financial Services Ltd., in a phone interview.

Finance Minister Kwabena Duffuor didn’t answer a call made to his mobile phone by Bloomberg News today.

Francis Kwabena Andoh, director of the treasury department at the Bank of Ghana, was unavailable for comment, a person who answered the phone at his office said.

The nation’s currency, the cedi, strengthened 0.1 percent to 1.434 versus the dollar.