Business News of Thu, 9 Nov 20173
Bond failure 'no confidence vote' in goverment – Minority
The National Democratic Congress (NDC) Minority in Parliament, has accused the government of causing financial loss to the state with the recent issuance of the Energy Sector Bond.
According to the minority, the below GHc 6 billion yield of the bond is a solid basis for the Finance Minister, Ken Ofori-Atta, to be hauled before the House to explain why investment advice from places such as the IMF among others was ignored.
Addressing a press conference in Parliament on Wednesday, Minority Spokesperson on Finance, Mr Cassiel Ato Forson, said the complex structure of the bond and unrealistic assumptions by the government caused what the Minority called the spectacular failure of the bond.
“The simple point is that, instead of them issuing a bond called plain vanilla, they decided to use this complex structure that has caused the taxpayer some 200 basis points,” Mr. Ato Forson stated.
The 200 basis marks about 2 percent of the GHc 6 billion sought, amounting to about GHc1.2 million, which he noted “can help the government to finance the Free SHS that they are struggling to settle.
The bond is unrated, per a prospectus issued in October, but an independent special purpose vehicle sponsored by Ghana had the bond hovering around a B-stable rating, according to Fitch, among others.
Mr. Ato Forson insisted that, the government could have saved the aforementioned 200 basis points “if they had gone to the financial market on the strength of government of Ghana ratings, rather than the ESLA PLC which is unrated and unknown.”
Thus he held that, the “government delegation had woefully caused financial loss to the state as a result of their gross incompetence. Because of someone’s gross incompetence, the state is losing GHc 1.2 billion over a ten year period.”
It is, for what he called, “this reckless conduct” and “gross disrespect for the constitution” that the Minority is requesting the Finance Minister be hurled before Parliament.
“This singular failure of the bond issuance in this administration had brought Ghana’s image and integrity into disrepute in the financial market. Ghana has become a laughing stock in the financial market.”
The bond was issued to offset the legacy debts of the energy sector. The energy debt is estimated at GHc 10 billion but in all, government accrued some GHc 4.69 billion from the energy bond.
The seven-year component raked in GHc2.4 billion as targeted, at an interest rate of 19 percent.
However, the 10-year bond failed to hit the GHc 3.6 billion mark. It accrued some GHc 2.29 billion at an interest rate of 19.5 percent, meaning, the total amount received was about 22 percent less than the targeted GHc 6 billion. ESLA was forced to extend the auction by a week over low proceeds.
Improper packaging, uncertainty, as well as political composition of the Board of ESLA, have been cited as possible reasons for the under-performance of the energy bond.