Government will today issue GHc 162.13 million in 20-year fixed bonds, resulting from a tender which has been under-subscribed by more than half – the target was GHc450 million – at an interest rate ranging from 19.85 percent to 20.2 percent.
This follows a successful tendering held on Friday, August 23, 2019, of the longest tenured issuance of cedi-denominated domestic debt securities ever attempted by the Government of Ghana maturing in 2039. Prior to last week’s tender. The longest tenure ever done prior to this one has been 15 years, with issuances begun in April 2017.
Before that issuance, government had been unsuccessful in doing issuances of over seven years. Therefore, despite the large shortfall in subscription, compared to the target, last week’s issuance is being seen as a victory.
Ghana’s medium and long tenured debt securities have been primarily subscribed by foreign investors who have been allowed to participate in such issuances since 2007. This has enabled successive governments to extend tenors- and thus the average maturity of the public debt – and has improved price discovery, allowing issuances at lower yields than they would otherwise have been. It has also proved to be a veritable source of foreign exchange inflows since foreign investors exchange their forex for cedis in order to make their investments.
The yield on last week’s 20-year issuance is far higher than most alternatives worldwide and is attractive because it is generally expected that yields will drop considerable over the next two decades allowing investors locked into the current yield to earn well above-market yields when this happens. On the other hand, it is also expected that cedi depreciation will eat away most of those yields in dollar terms.
On the downside though foreign participation has increased Ghana’s foreign exchange exposure to investors who have investment options worldwide and therefore tend to be fickle, exiting from Ghana whenever interest rates in other markets rise relative to those in Ghana’s or the cedi depreciates thus reducing real, dollar yields on cedi investments. When this happens, investors exit by trading or discounting their securities and returning to dollars, an activity which puts pressure on the cedi exchange rate. Indeed, this was the primary reason for the sharp depreciation of the cedi in early 2019.
Per the debt issuance calendar for June to August, 2019, government targeted to tender an amount of GHc 450 million for the 20-year fixed bond, solely in August. This forms part of the total issuance of GHc 2,650 million that government intends to raise during this month.
Government on Wednesday opened the book-build, after releasing an initial pricing guidance for the 20-year Treasury bond through the Ghana Stock Exchange, on Tuesday, August 20, 2019.
The bonds issued had each having a face value of GHc 1, with a minimum subscription of GHc 50,000 and multiples of GHc 1,000 thereafter. The offer was opened to both local and foreign investors.
The 20-year bonds were issued through Barclays Bank, Databank, Stanbic Bank, Fidelity Bank and IC Securities acting as book runners for government.
From June to August 2019, government plans of raising a total GHc 10,350 million from the domestic market, representing a 14.46 percentage point’s increase from the amount targeted in the second quarter of GHc 12,100 million.
Of the total gross amount, GHc 9,873.37 million is to rollover maturities and the remaining GHc 476.63 million as fresh issuance to meet government’s financing requirements.
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