US$750m eurobond adjudged best sovereign bond In Africa for 2016

Ghana’s US$750 million Eurobonds which sold last year and was oversubscribed by more than five times has been adjudged the Best bond in Africa for 2016 by EMEA Finance, an international magazine that reports on emerging financial markets in Europe, Middle East and Africa (EMEA).

The bond which sold at a yield of 9.25 percent on 9th August 2016 received orders exceeding $4 billion and due to be repaid in three equal installments between September 2020 and the same month in 2022.

The bond issue was on the guidance of both local and foreign advisors including Ghana's Data Bank, SAS, Bank of America Merrill lynch and Citi Bank.

At the time, then Finance Minister, Seth E. Terkper, who led the team on the roadshow leading to the bond sale said about US$400 million of the bond proceeds, was to be used to refinance securities maturing in 2017 including the final instalment for Ghana's first bond which was sold in 2007, with the rest being used for capital projects.

For the period 2013 through 2016, the ex-Minister had followed a strategy of refinancing (using new Bond issuances with soft-amortization), establishment of a Sinking Fund from Ghana’s modest crude oil proceeds, and the country’s first-ever secondary market buy-back to neutralize the significant roll over risk from both domestic and foreign bonds.

In pursuit of the country’s refinancing and tenor-extension policy, Mr. Terkper is thought to have persuaded the World Bank to back Ghana’s 2015 US$1billion Bond issue with a Policy-based Guarantee—in addition to a Partial Risk Guarantee (PRG)—that will support the utilization of new gas finds to generate power to revive growth.

Since then, the previous Government used part of the proceeds of sinking fund to buy back part of the 10.5 percent World Bank guaranteed bond at a much lower rate.

Another vital loan strategy that came under the ex-Minister’s “smart-borrowing” plan includes creating escrow accounts built from the proceeds of commercial projects to pay for the loan that finance those projects.

The unsustainable alternative is to make the taxpayer service such project loans as pure public debt, not a contingent liability.

“Investors are taking notice of our debt management strategy, including setting up a Sinking Fund to pay down the principal component of our debt, rather than the current practice of paying only interest and simply rolling-over the original amount borrowed.

While Ghana’s debt stock levels remain high, we have succeeded in turning the rate of growth to negative, even as growth came under strain from disruption in gas and power supply to the economy, huge single-spine arrears payments, and drastic falls in all key commodity prices” Seth Terkper said in an interview with the media immediately after the bond sale.

Although at the time of going to press he could not readily be reached for extensive comments, his only response was from a text message that said `this is good news for Ghana, the pursuit of our debt management strategies for both central government and SOE debts, under the new PFM laws and better growth prospects, can result in sustainable debt levels.''

In a congratulatory message ahead of the awards ceremony slated for June 8 at the Law Society in central London, EMEA Finance said the 2016 Debt Capital Markets in the EMEA region was responsible for some of the largest ever emerging market debut issuances which provided some of the longest maturities seen for sovereign and supranational borrowers - even as far out as 70 years, and offered attractive and innovative funding for leading corporations.

Other winners include: Rand Merchant Bank who won Best Bond House in Africa, Standard Bank won Best local currency bond house. Portugal's €4bn issuance was Europe's best sovereign bond while Oman's US$2.5bn debut issuance was deemed the Best sovereign bond in the Middle East.