Market volatility stalls corporate bond growth

The Chairman of the Council of the Ghana Stock Exchange (GSE), Dr. Sam Mensah, has noted with concern the country’s volatile macroeconomic environment, which he says has affected growth of the corporate bond market.

He said the high interest and inflation rates in the country have made it difficult for companies to consider issuing corporate bonds to raise long-term capital.


There’s no corporate bond listing in Ghana’s capital market currently and only HFC Bank issued a bond in the past decade and half.


“The corporate bond market is a market for long-term instruments, and the instruments do not thrive in an environment where inflation and interest rates are high and volatile. So we have those challenges,” Dr. Mensah said.


“When interest rates are volatile, people do not want to invest long-term and that makes it difficult to market instruments with long-term maturities. Same goes for inflation because investors worry about losing the value of their money, so they don’t go for long-term instruments. So one area that we need to work on is to stabilise the macroeconomic environment,” he added.


Ghana’s inflation rate is at a four-year record of 15 percent, and since the year began prices of petroleum products have been adjusted upwards by four times, which sums up to about 40 percent increase, as a result of the slide in the cedi -- which has depreciated by about 30 percent against the US dollar.


The fall in the value of the cedi also caused the Public Utilities Regulatory Commission (PURC) to hike utilities tariffs by 12 percent and 6.1 percent for electricity and water respectively this month.

The central bank’s policy rate -- which signals interest rate trends -- has gone up for the second time this year from 18 percent to 19 percent as the Bank of Ghana moved to tighten monetary policy in a bid to control inflationary pressures from the increase in utility tariffs and transportation costs as well as the depreciation of the cedi.


Dr. Sam Mensah -- who has been with the GSE for the past 20 years -- said addressing the macroeconomic challenges is critical to bringing the corporate bond market to life, adding: “The corporate bond market is non-existent. To make the corporate bond market successful, there are a number of important prerequisites that we need to get right, like macro-economic stability.”


Currently, companies in dire need of long-term capital mostly turn to bank financing and the stock market to raise money for their operations.


Dr. Mensah advised companies that want to use the corporate bond market to raise capital to be transparent in their dealings in order to be successful in their bid.


“In the corporate bond market, you need to be transparent and meet all the disclosure requirements. So there’s some reluctance by the corporate sector to move from bank financing to corporate bond financing even though they recognise the advantages of issuing corporate bonds,” he said.