Government will issue a US$403 million bond this month to finance the five undercapitalized banks that have been selected to benefit from equity financing under the Ghana Amalgamated Trust (GAT), according to Bloomberg.
Government through the Ministry of Finance created the Ghana Amalgamated Trust, as special purpose vehicle to help five indigenous banks which were undercapitalized to meet the GHc400 million capital requirement after the banking sector reforms.
According to Managing Director of GAT, Eric Otoo; the trust is expected to pay debt investors a once-off annualized rate of 21 percent when the bonds mature after five years with GAT seeking to exit the holdings through buy-outs or listings on the local bourse.
GAT’s formation and debt sale come in the closing stages of a sector cleanup during which banks had to raise their capital holdings, a process which cut the number of banks by almost a third to 23.
The reforms announced in September 2017 triggered a series of capital-raising efforts while the government issued 9.8 billion cedis in bonds to cover the liabilities of poorly-managed banks and protect depositors’ funds. The banks themselves were liquidated as separate corporate entities with their balance sheets and activities consolidated into a newly established, state owned and aptly named Consolidated Bank Ghana
The five banks that will receive funding from GAT didn’t meet the capital threshold but are soundly managed, said Otoo; adding “It’s an arrangement to save the system, salvage the situation and allow the banks involved some time to pay back.”
A roadshow for the debt sale will start February 18 with government guaranteeing 70 percent of the sales.
Beneficiary entities of GAT include the National Investment Bank Ltd., Agricultural Development Bank Ltd. UMB Bank Ltd., Prudential Bank Ltd. and the merged entity of BSIC Ghana and Omni Bank Ltd.
Amortization is a financial practice that allows buyers to pay for something over an extended schedule rather than all at once. Mortgages and car loans, for example, are commonly paid through an amortization schedule.
An amortization schedule typically involves regular payments over a particular time period. Essentially an extension of credit, amortization allows people and businesses to make purchases that they don’t have funds available to pay in full. Because interest is factored into payments, the total cost of an amortized purchase is significantly higher than the original price.