The acute fiscal strain that government has been put under by the combination of revenue shortfalls and unforeseen public expenditure has begun to show up vividly. Government, this week, has had do a three-year treasury bond issuance, which was not on its debt calendar for the second quarter of 2020, just to raise monies to settle investors in three year bonds that will mature this coming Monday, June 1.
While debt refinancing is a regular activity by government it is uncommon for it to seek refinancing of maturing medium term debt so close to the maturity date and unknown for it to have to resort to an issuance which was not even on its debt calendar in order to raise the monies to be used for such “last minute” refinancing.
Instructively, in accordance with the public debt issuance calendar for the second quarter of this year, investors had expected the next issuance of three year bonds to have been in June.
Indeed, the situation makes government’s need for extraordinary Bank of Ghana direct financing of its extraordinary 2020 fiscal deficit understandable, as well as the central bank’s willingness to provide it in contradiction to its own erstwhile zero financing of government policy, in place since 2015. The BoG itself explained recently that without central bank direct financing of its exploding deficit, government would have to pay inordinately high coupon rates in order to secure the amounts it needs from the financial markets.
Per the government’s debt issuance calendar for the second quarter of 2020, an amount of GHc 1,800 million is expected to be issued. Of this amount, GHc 800 million and 1,000 million were projected to be raised, in April and June, 2020, respectively. However, no issuance of three-year treasury bond was originally planned for May 2020. Evidently the re-opening of the April issuance is an effort to plug a financing gap created by the under-subscription of the original offer, done at a time economic uncertainty because of the coronavirus outbreak was at its peak.
However the targeted amount for this particular issuance has not been made public.
Each bond to be issued shall have a face value of GHc 1, with a minimum subscription of GHc 50,000 and multiples of GHc 1,000 thereafter. The offer will be opened to both local and foreign investors.
Books were closed midday on Thursday, around 2:30 pm, with the final pricing and allocation determined.
Successful bids will be cleared at a single clearing level. However, in the event of oversubscription, there will be a discretionary allocation at the single clearing level. Investors are expected to be settled or issued with the bonds on Monday, June 1, 2020.
To this end, successful bidders will be allocated at the price at which they bid, whereas partial allocations will be made to bids at the cut-off price at the issuer’s discretion in the event of oversubscription.
The issuance calendar indicates that government aims to build benchmark bonds through the issuance of the different instruments, including three-year bonds through the book-building method.
The three-year bonds would be issued through Absa, Databank, Stanbic Bank, Fidelity Bank and IC Securities acting as book runners for government.
Government Debt Strategy
The 2020 debt strategy focuses on an appropriate financing mix to mitigate the costs and risks to achieve the desired composition of the public debt portfolio with respect to borrowing from external and domestic sources.