Cabinet approves US$1b Eurobond

Cabinet has approved a transaction size of US$1billion based on anticipated market conditions and financing needs of the proposed Eurobond auction, Finance and Economic and Minister Seth Terkper has disclosed.

 

Prior to the approval by Parliament, the exact amount will be subject to variations that might be dictated by market conditions and parliamentary approval. 

The lead managers of the transaction are Citi Group and Barclays. The co-managers will be EDC Stock Brokers and Strategic African Securities.

Mr. Terkper explained at a media briefing that the Eurobond is intended to restructure the public debt, reduce the interest burden on the budget, and provide funds to finance critical infrastructure projects.

“The indicative use of proceeds as approved by Cabinet includes payment of counterpart funds for capital projects,” he said.  

He said, “The global interest rates are low and Government, upon advice from international experts, believes this is the right time to float a bond. We won’t be reckless in issuing the bond. We are optimistic the bond issue will be a success.”

He added: “Government, as part of debt management policy in the 2013 Budget Statement and Economic Policy, indicated its intention to extend the maturity profile of the public debt by diversifying its sources of funding for major infrastructure projects and for other specified purposes -- including tapping the global bond market.

“Investors don’t only look at the current situation; they also look at what policies you have for the future.”

Mr. Terkper indicated that Cabinet approved the constitution of a transaction team toward issuance of the sovereign bond, comprising the Ministry of Finance and the Bank of Ghana, to manage preparatory activities for the issue.  

The country’s financial sector is aiming to benefit from a lower interest rate when Government sells its second Eurobond -- tentatively from July 2013, discussions over which are currently ongoing.

The first 10-year Eurobond in 2007 attracted a coupon rate of 8.5 percent, but the yield for the next one is likely to be lower because of the prevailing low international interest rates, Bank of Ghana (BoG) Governor Henry Kofi Wampah told B&FT.

 “We want to take advantage of the low interest rates. We’re looking at rates that are lower than what we paid in 2007.” 

Dr. Wampah nevertheless insisted that the timing is right because of the lower yields in the market, which could begin to rise if the economic recovery in advanced countries firms up.

Government has said the budget deficit -- which became the source of much anxiety after it rocketed to 12 percent of GDP last year -- will be narrowed to 6 percent of GDP in the medium-term, after it’s been trimmed to 9 percent this year.

Fitch Ratings has already cut the outlook on Ghana’s B+ sovereign rating to negative from stable on the back of the blown-out deficit and persistent wage-expenditure pressures. In 2007, Fitch rated Ghana B+ with a positive outlook ahead of floating the first Eurobond.

Dr. Wampah said the credibility of policies to achieve fiscal targets and stabilise the cedi “is what investors will be looking for”.

There is a need to refinance some of Government’s debts including the 2007 Eurobond, he said, and part of the proceeds from the next sale will be used for that purpose.