The Ministry of Finance has described the maiden 20-year bond issued last week as a success; refuting claims made by Bloomberg that the bond was a failure given that it was undersubscribed.
The Ministry in a press release explained that the issuance of the longest-tenor domestic bond was to raise as much as GH¢450 million.
“This was in accordance with the Issuance calendar, which is published on a quarterly basis at the beginning of each quarter. In the Issuance Calendar for the 3rd Quarter, we included the possibility of issuing a 20-year bond for the first time subject to market conditions and indicated a target size of up to GH¢450 million,” the Ministry stated.
The release said the rationale behind the issuance was to extend the tenor, yield curve, and establish a benchmark. This also helps to deepen the domestic market and improve liquidity through the issuance of benchmark size bonds that will be sizeable enough for investors to trade in and out of, thereby creating liquidity, better price discovery or pricing and deepening the secondary market.
According to the MInistry, it was aware that given the current market conditions and the limited appetite for longer-dated bonds, the size of the debut issue was unlikely to be of a benchmark size, and that was the reason it was structured as a shelf offering so additional issuances could be done overtime to reach the targeted GH¢450 million benchmark level.
“As such contrary to the articles published by Bloomberg, this was not a failed or under-subscribed offering but a fairly priced offering that has established another data point along our yield curve.
As such, the Ministry has been successful in sticking to its strategy of elongating Ghana’s yield curve with the issuance of the highest tenor bond (20-year bond) on the domestic market. Prior to this, the longest dated bonds on the domestic market was the 15-year bond,” the statement said.
The Ministry’s press release further added that the strategy to extend the yield curve is consistent with its 2019 Annual Borrowing Plan and 2019 Medium Term Debt Strategy of issuing longer-dated bonds beyond 10 years to elongate the yield curve further.
“It is also consistent with our efforts to deepen the domestic debt market by building benchmark securities through tap-ins, rather than excessive new issuances. It is also part of our strategy to re-profile the domestic debt portfolio by reducing the percentage of shorter-dated instruments of 91 and 182-day bills, which dominates our bond market and increases rollover risks,” the Ministry stated.
The government sold GH¢162.1 million ($30 million) of the maiden 20-year bonds Thursday with a yield of 20.2%.