Government hits road to raise $2.5 billion to defray energy sector debt

In its quest to settle the huge debt crippling the energy and the banking sectors of the country, the government on Thursday began a roadshow in London to raise $2.5 billion through the issue of the much-awaited energy sector bond to defray the debt.

Proceeds from the roadshow will be used to offset the $2.4 billion energy sector debt which nearly brought banks in the country to their knees.

The roadshow is expected to continue in Accra on October 23, 2017.

Special purpose company

An independent special purpose company, E.S.L.A. Plc, established and sponsored by Ghana and acting through the Ministry of Finance, has appointed the Standard Chartered Bank Group, Standard Chartered Bank Ghana Limited and Fidelity Bank Ghana Limited to arrange a series of fixed-income investor meetings in London and Accra.

Co-managers on the mandate are Temple Investments and the GCB Bank.

The bond, which will be auctioned in tranches, will start with a first tranche of about $1.3 billion (GH¢6 billion).

Processes towards the issuance of the bond were expected to begin in September but the government faced some approval challenges.

Debt impact

The banking sector, one of the major backbones of the economy, was visited with another major challenge after loans advanced to some state-owned energy sector companies could not be recouped.

The phenomenon led to the worsening nature of non-performing loans (NPLs) on the books of the banks, a situation which was crippling the sector.

For instance, in the Bank of Ghana July 2017 Banking Sector Report, domestic gross loans stood at GH¢37.51 billion in June 2017, while the total stock of NPLs in July was GH¢7.96 billion, up from GH¢6.09 billion in June 2016.

That translated into an NPL ratio of 21.2 per cent in June 2017, far higher than the 18.8 per cent in June 2016.

The report further indicated that when adjusted for the fully provisioned loan loss category, the NPL ratio showed an increase from 10.9 per cent in June 2016 to 11.3 per cent in June 2017.

The high NPLs is also negatively affecting the interest rates charged by the banks, with its attendant impact on the industry.

Presently, interest rates are at an average of 28 per cent, one of the highest in the sub-region.

The situation has prompted banking industry players to prevail on the government to move in to carry out its pledge to issue the energy sector bond in order to free the banks from their present situation.

It is expected that proceeds from the issuance will be applied to the repayment of outstanding obligations to banks.

Experts believe that if the issuance is successful, it will help ease banks’ NPL ratio position and improve liquidity in the banking sector.

It is also expected that reduction in the NPLs will have a positive impact on interest rates, which are a major challenge for businesses across the country.