Ghana raises GH¢458bn from 5-year bond, misses its target

The Government of Ghana raised GH¢458.53 billion from a 5-year bond auctioned yesterday.

This comes despite the coronavirus outbreak and the consequent sharp decline in crude oil price, which has already forced some foreign investors to sell out of Ghana cedi denominated assets.

According to trading results, the final coupon rate was 21.70%. It was however higher than the 20.75% rate that the nation auctioned the 3-year bond in January 2020.

It is unclear whether majority of the subscribers of the debt instrument were foreign investors.

Class Business understands that the coupon rate is below what the secondary levels are doing for 2025 maturities. The secondary levels for the 2025 maturities, January 2025 and April 2025 are slightly above 22%.

Courage Martey of Databank said the yield is good for the Ghanaian economy since government has been able to issue a bond at an interest rate below what the market would have charged, explaining further that ”the government has been able to ensure that the market did not price-in excessive COVID-19 and FX risks premium into the interest rate it will be paying over the next 5-years.”

However, he said “The down side is that because government did not allow the market to price-in more COVID-19 and FX risks premium, the total bids submitted by investors and the total amount raised was below how much the Treasury would have loved to raise, which is about GH¢1.0 billion as per the Q1-2020 debt issuance calendar.”

The funds from the 5-year bond [roll over] is expected to be used to settle maturing debts.

The government will this year spend GH¢22 billion on interest payments on loans.

The country is, however, targeting GH¢67.07 billion as total revenue and grants for this year. Out of this, a substantial chunk will go into wages and emoluments, as well as cost of servicing debt.

Interest payments on Ghana’s debt increased by 8.97% to 40.71% at the end of the third quarter of 2019

On September 30, 2018, interest payments alone on loans contracted by the government of Ghana were estimated to have grown to about 31.73%.