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Ghana Raises US$2.0 Billion in Eurobonds with the Lowest Interest Rate Ever

Ghana Raises US$2.0 Billion in Eurobonds with the Lowest Interest Rate Ever

The Ministry of Finance (MoF) on behalf of the Government of Ghana (GoG) accessed the international sovereign bond markets to raise funding for budgetary purposes and for liability management on May 10, 2018.

Concluding a very successful international sovereign roadshow, Ghana successfully raised a total of US$ 2.0 billion in 10-year and 30-year Eurobonds of $1.0 billion each. The bond issue was four times over-subscribed with over $8 billion dollars in offers received.   The 10-year bonds priced at 7.625% whilst the 30-year bonds priced at 8.627%

Ghana achieved this in what turned out to be a week of very turbulent global capital markets.  The market weakness was triggered by among others, rising US interest rates and a currency crisis in Argentina resulting in an aggressive sell-off of bonds across the board by investors. To address the scale of the currency crisis, Argentina had to approach the IMF for a $30bn loan last week to help shore up reserves to support the Peso and its Central Bank increased domestic interest rates to as high as over 40% over an 8-day period in an attempt to help defend the Peso.

Against this rather turbulent backdrop and a general sell-off of emerging market paper which saw spreads widen considerably, Government decided to tender for only the higher priced 2022 US$750 million Eurobond which was issued at an interest rate of 9.25% in 2016 by the previous Administration.

As such, despite parliamentary approval to issue up to US$2.5 billion with up to 1.5 billion of this amount for liability management, MoF decided to scale back the total issue to US$1.5 billion; US$750 million to repay the 2022 euro bonds and U$750m of new debt for the budget.

However due to excessive demand by investors and four times over-subscription, Government decided to increase the amount to be issued from US$ 1.5 billion to U$2.0 billion. The extra amount raised shall be kept in the sinking fund and shall be used for more proactive liability management subject to market conditions going forward. Whilst the US$750 million in new debt shall be used to fund infrastructure investments nationwide and compliment the Governments job creation agenda in the process.

Additionally, GoG managed to extend the yield curve to 30 years and obtained the lowest rate on a 10-year bond since our debut Eurobond issue in 2007 and the lowest rate for a B rated African sovereign.

This is an endorsement of Ghana’s turnaround story for a “future beyond aid” and an indication of the strong investor confidence in the Ghanaian economy going forward and a true reflection of the significant improvement in Ghana’s economy.  

It must be noted that this bond achieved many significant milestones:

  • The first time a ‘B’ rated sub – Saharan country has priced a sovereign bond at this level indicating strong investor confidence;
  • The first time Ghana has extended the tenor of it international capital market funding to 30 years and hence extended the yield curve by two times;
  • It is also the largest Eurobond ever raised by Ghana and was 4 times over-subscribed

 

It must also be noted that despite the size, more than half of the amount will be used for liability management which will not increase the net total debt stock.

We would like to take this opportunity to thank the Parliament of Ghana for considering and approving the deal. We also thank officials from the Ministry of Finance, Bank of Ghana and all the MDAs who supported the deal with their expertise and hard work which allowed us to go to market in record time. We would also like to thank the Joint Lead Managers who did a great job under what turned out to be rather turbulent market conditions. For the first time Ghana’s co-managers (Fidelity Bank and IC Securities) played a more significant role on the transaction, the exercise has been instrumental in building local capacity and domestic confidence.