The government of Ghana has introduced the issuance of Global Depository Notes as part of its public borrowing for the first time.
Although the first issuance is tentative, at GHS500 million (about US$123 million), ostensibly to test the reaction of international bond investors to Ghanaian sovereign GDNs, bond market analysts believe that this may be the start of extensive use of this type of debt instrument, which is relatively new in sub Saharan Africa.
The first issuance has a tenor of five years and the proceeds are to be used to amortize maturing domestic bonds.
GDNs are debt instruments created by institutions, such as sovereign governments or major corporations that evidence ownership of a local currency debt security, and indeed are structured as domestic bonds with regards to interest rate, maturity date and credit quality, but which are traded, settled, and pay both interest and principal in United States dollars.
By issuing GDNs, Ghana’s government is effectively borrowing in US dollars, and is obligated to service and amortize the debt in that currency, but the debt is classified as domestic debt and so its issuance does not require Parliamentary approval.
Sooner than later this will form the ground for intense squabbling between government and the political opposition, although the first issuance has not been publicly challenged, ostensibly because of the relatively small quantum involved.
Rather, the political opposition is reserving its public criticism for the US$2.5 billion in Eurobonds which Parliament has given government approval to issue imminently.
This will be the largest Eurobond issuance by Ghana to date, of which US$1.5 billion is to be used to refinance existing debt and US$1 billion is to give government fresh funding but will as such add significantly to the inordinate public debt.
Ghana’s first ever GDN issuance is Euro-clearable, which means the Notes will be settled and traded on Euroclear, the platform created in 1968 by JP Morgan, the renown American investment bank, and which is now headquartered in Belgium from which it provides clearing house and central depository services for bond issues from over 90 countries worldwide.
It is one of the two principal clearing houses used for securities listed on the Euro Market and effectively acts as an intermediary between buyers and sellers of such securities.
Government hopes to use the issuance of GDNs to attract direly needed foreign exchange inflows, while replacing local market funding for the public debt with foreign funding, thus also freeing up the local capital market’s funding for local enterprise, at a time Ghanaian banks have significantly cut back their credit growth to the private sector while they repair their respective balance sheets after having to make major provisions from their capital against actual and potential loan losses.
The GDNs being issued by government are part of a total of GHS11,324 million in debt securities being issued during the second quarter of 2018, of which GHS8,478 million is for refinancing maturing debt while GHS2,576 million is to finance government’s deficit spending and thus adds to the total public debt.
Altogether, 91-day treasury bill issuance is to generate GHS4,629 million; 182 day bills, GHS2,105 million; one year notes, GHS1,501 million; two year notes, GHS840 million; three year bonds, GHS250 million; five year bonds, GHS500 million; seven year, GHS750 million; and ten year bonds, GHS750 million.