Low investor confidence reduced 5th Eurobond maturity

Some economists have strongly suggested that the lack of investor confidence in the Ghanaian economy, led to the reduced maturity period for government’s 750 million dollar Eurobond.

According to a Senior Lecturer at the University of Ghana, Dr. Lord Mensah, the lack of trust in the Ghanaian economy led to a coupon rate of 9.25%.

“This shows how investor confidence in the Ghanaian economy is declining. Probably, government made the attempt to go for the long term but then they were not getting the funds that they wanted because the investor or institutional investor would like to commit possibly for a longer term only if they have trust in the economy,” he stated.

Dr. Lord Mensah therefore suggested efforts are put in place to improve the economy by channeling returns on bonds into more productive ventures and reap positive outcome.

“Already, the global markets are not favoring per say and so investors will not invest their monies in Ghana. Also, looking at Ghana, investors know that a chunk of the revenue being generated internally (aside moral hazards associated with it), have been put into businesses or projects that are sub-standards.”

“The investor also foresees a situation where you will not be able to raise money to pay back when there is trouble and then also the management of the economy” he added.

Government last Thursday (September 8, 2016) issued its fifth Eurobond of 750 million dollars at a yield of 9.25 percent a few points lower than the last one which was at 10.75 percent.

The bond which though was oversubscribed with orders exceeding 4 billion dollars has a tenor of 5 years.

The bond has been met with heavy criticisms from economists including Dr. Mahamoud Bawumia, a former Deputy Governor of the Bank of Ghana.

The 5 years for maturity of the Eurobond is the shortest period in the history of Eurobond issues in Ghana and the principal will be expected to be repaid in three installments of US$250 million in September 2020, September 2021 and September 2022.

Government has been forced to put on hold issuing of this particular Eurobond a number of times because of unfavorable market conditions.

It was forced to put on hold the launch last month [August] after investors quoted interests much higher than government had expected.

Interest for the last Eurobond issued last year [October, 2015] which was backed by a World Bank guarantee of 400 million dollars was 10.75 percent, the highest attracted so far.

The high interest rates that were demanded by investors have been attributed to the country’s current economic challenges as well as high debt levels.

Proceeds from the Eurobond will be used to retire the first Eurobond which matures next year [2017].

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By: Norvan Acquah – Hayford/citibusinessnews.com/Ghana