Government has announced that it has accepted investors’ demand for 10.75 percent interest on its US$ 1billion Eurobond, despite concerns that the loan will have a debilitating effect on the country’s debt situation due to its high coupon rate.
Initially, there were fears that government had pulled out of the Eurobond move after investors demanded a higher yield of more than 11 percent for the country’s third sovereign bond in three years.
Despite announcing that it will be borrowing US$1.5billion from the international market, a statement issued by the Finance Ministry on Wednesday showed that government has lowered the initial amount, having accepted an offer for US$1billion.
Explaining why government watered down its initial target, Finance Minister Seth Terkper explained that the approval passed by parliament granted government the leeway to raise up to US$1.5billion, subject to market conditions.
Essentially, according to the Finance Minister the figure is not absolute — and is subject to market conditions.
Unlike the previous bonds which had 10-year maturity periods, the latest has a 15-year maturity period — making Ghana the first country apart from South Africa in sub-Saharan Africa to issue a bond of such nature.
Speaking to Accra-based radio station Citi FM, the Finance Minister said the lengthy maturity is one “we should be proud of as a country as we seek long-term financing to fund infrastructural projects.
“We have been financing infrastructure developments with Treasury bills, and this is not the best. The longer you are able to get capital market loans the better.”
Apart from infrastructural projects, part of the Eurobond will also be used to refinance maturing domestic debts; and Mr. Terkper said government got it right in choosing to borrow from the international market rather than the local which comes with its attendant issues.
He stated: “We are going to use the bond to refinance 3-year and 90-day bills. It will benefit us if we discuss whether it is more prudent, even at 10 percent, to refinance the 3-year bond which is due, for example in two weeks’ time; or whether it would have been better to refinance it domestically at 27 percent — increasing domestic interest rates and crowding out private capital. This is the type of analysis we should be doing”.
The release issued by the Finance Ministry said the bond is a soft amortising bond, meaning that it will mature in years 2028, 2029 and 2030 with principal repayment in three instalments of US$333million in years 2028 and 2029, and US$334million in 2030.The notes will be listed on the Irish and Ghana Stock exchanges.
The minister reiterated that bond issuance is in line with the country’s new debt management strategy, guided by the principle of financing capital expenditures with long-term debt and using a sinking fund mechanism for the smooth redemption of maturing debt obligations.
According to the Finance Ministry, the country’s total debt stock as at July stands at GH¢83billion — of which domestic debt makes up GH¢36.5billion.