Low patronage of GH¢10 billion Energy Sector bond due to low interest rate
Government’s inability to achieve its targeted GH¢10 billion Energy Sector bond was largely because investors considered the interest rate unfavourable, a Deputy Minister of Finance, Kwaku Kwarteng has said.
According to him, investors were not happy with the 19% promised them, and had asked for more, but government was not willing to offer anything beyond 20%.
Speaking on an Accra-based radio station, Citi FM, Mr Kwarteng noted that government pegged the interest rate for the bond at 19% because “we don’t want to overburden the economy with interest payments.”
His response comes on the back of a press conference by the Minority in Parliament at which they suggested that government’s inability to raise the initial amount was due to its mismanagement of the economy.
Government issued a ten-year and seven-year bond with the aim of getting GH¢6 billion to offset the legacy debts of the energy sector, which is about GH¢10 billion.
But in all, a total of GH¢4.69 billion was realized even after a seven-day extension period.
The 7-year component in the first-quarter of 2017, raked in GH¢2.4 billion as targeted, at an interest rate of 19 percent.
However, the 10-year bond failed to hit the 3.6 billion cedis mark.
19 per cent interest
Mr Kwarteng explained that government’s decision to peg the interest at 19 per cent was because it didn’t want to overburden the economy with interest payments.
“We gave instructions to this company [ESLA Plc] that as a matter of government policy, we do not want you to take bond beyond 20%, and so that is how they went to the market. Now on the 7 year bond, the minority is right; some of the investors invested immediately, some of them said that they have been used to buying Ghana bond at 25% or 26%, which was under the previous administration, but why is it that now you want to sell this bond and you are giving us this low, so we are not enthusiastic about it. That is the whole crux; it’s about the price of the bond.”
The Deputy Minister said they tried to convince the investors to patronize the bond telling them that “the macroeconomic fundamentals are better, we think that the things investors should consider when they are lending to a country are far better than 2015, when they were buying government bond at 25 or 26 percent, so they should patronize our bond at the price we are giving and that we don’t want to move.”
“After several engagements – people want to call it begging – we sat down and explained to people, why below 20 is a fair price to give them. Thankfully, we now got all that we want for the seven-year bond at the rate of 19%. Now the 10-year bond we are facing a similar situation. The investors are telling us that if we can even come up to 21%, we will get what we want. We believe that if they do a proper analysis of the economy, in the end, they will see at a maximum the 19.5% that we are presenting now as a fair price,” he added.
We’ve not breached constitution over energy bond
On claims that government breached the constitution for not seeking Parliamentary approval, Kwaku Kwarteng said they did no wrong.
“When you go to the bond market, you are not in a position to sit down and agree on a set of terms, take it Parliament, come back and you get those terms from the different investors. It’s not possible. We think that this press conference was completely unnecessary, bad taste and misinformed…In the eight of years of Rawlings, Mills/Mahama, they’ve never brought any bond issue to Parliament so why are they now asking why we did not take it to Parliament.? The NPP government is clear on what we are doing, we are not going to be pressured to give the kind of unhelpful and imprudent interest rates that we gave to investors. We will continue to engage and we are sure that at the end we are going to get the money that we want,” he added.