- Eurobonds 7 times oversubscribed as cedi bonds rejected
Even as Ghana’s economic managers deservedly congratulate themselves for successfully seeing through the country’s largest Eurobond issuance to date, at the very first attempt, they are having to do a thorough rethink of their debt management strategy, based on the evident sentiments of international investors who put up some US$21 billion at the start of this week.
Ghana’s US$3 billion latest Eurobond issuance was nearly seven times oversubscribed earlier this week. But while Ministry of Finance, and Bank of Ghana officials, through a consortium of international commercial and investment banks, were selling dollar denominated sovereign debt securities to enthusiastic investors in London, New York and Boston, their counterparts in Accra continued to struggle in their efforts to persuade foreign investors to subscribe to shorter term, higher yield, but cedi denominated treasury notes and bonds.
Now government officials are having to come to terms with the fact that while foreign investors do not have a problem with Ghana’s credit worthiness, they are no longer enthused with the prospect of buying up cedi denominated portfolio instruments which carry veritable exchange rate risks. Over the past few months, cedi debt securities auctions have rarely achieved targets and since securities with tenors of two years or more are primarily bought up by forex wielding foreign investors, this has resulted in a foreign exchange crunch as reserves are drawn down to meet maturing repayment obligations and discounted exits by investors.
The cedi has been one of the world’s worst performing currencies so far this year, although a rebound over the past week – following news of several major forex inflows being expected including the latest Eurobonds issuance – has cut its depreciation to 11 percent from a trough of 18 percent as at early March.
Government officials note that while Ghana secured a yield of 7.875 percent for its seven year Eurobonds this week, cedi denominated seven year bonds currently have a yield of 20.1 percent; yet investors are oversubscribing the former and under subscribing the latter.
The other two tranches of Eurobonds issued by Ghana this week involve 12 year bonds with yield of 8.125 percent and 31 year bonds at 8.95 percent. Instructively, Ghana’s domestic bonds yield curve ends at 15 years and so 31 year bonds are not even on the radar.
Finance Minister Ken Ofori-Atta, following the latest Eurobond issue revealed that the Ministry of Finance is now looking to reduce the proportion of domestic debt in Ghana’s public debt portfolio from 55 percent currently to 50 percent while increasing the proportion of dollar denominated debt to 50 percent. Apart from being more attractive to foreign investors he points out that dollar bonds are cheaper to service.
Financial analysts agree, further pointing out that even the passing of exchange risk from government to bond investors offers limited advantage; ultimately investors are guaranteed the forex cover with which to exit cedi denominated bonds and a default on availability of such forex cover will not be allowed to happen since it would have as bad an effect on Ghana’s standing in the international community as a principal repayment default.
Ghana has no plans to do another Eurobonds issuance this year, although US$1 billion of this one has been slated to meet maturing domestic debt obligations and another US$1 billion is to used to refinance more expensive Eurobonds issued over the past few years. This is already pointing to replacement of cedi bonds with dollar denominated bonds.
By Toma Imirhe