Govt issues GHc1 billion in 3-year bonds

Government has just completed the issuance of GHc1 billion worth of three year bonds which will mature in 2021. The bonds were issued with each having a face value of GHc1, with a minimum subscription of GHc50,000 and multiples of GHc1,000 thereafter. The offer was open to both local and foreign investors. Allocations were done on Wednesday and the results will be announced shortly.

The three-year bonds were issued through the book building process with Barclays Bank, Stanbic Bank, Fidelity Bank, Databank and IC Securities acting as book runners for government. Price guidance provided by the book runners was not made public during the week as bids were accepted, but going by current trends the issuance was expected to be cleared at somewhere between 16.5% and 17.5%, going by current market trends.

Concerns

However, some investment analysts have worried that the foreign investors who buy up most of the medium and long-term treasury bonds issued by government may demand higher yields because of concerns as to the cedi’s depreciation in recent months; although the three-year bonds are denominated in cedis, foreign investors invest in forex, thus incurring the exchange risk. Instructively, government’s two year bonds are currently trading at yields of 19.5%, some 300 basis points higher than their coupon rate.

The latest issuance is part of government’s public debt issuance calendar, under which government aims to issue GHc12.831 billion in debt securities during the last quarter of this year, of which GHc12.221 billion will be used to refinance maturing, existing debt while GHc 610 million will be used to finance government’s activities and thus amounts to new debt.

Debt securities

In October, government is issuing a total of GHc4,280 billion in debt securities, inclusive of this week’s three-year bond issuance.  The rest for the month comprises GHc1.68 billion in 91 day treasury bills, GHc800 million in 182 day treasury bills, GHc400 million in one year treasury notes and GHc400 million in two year treasury notes. Only issuances of two years or longer are available to foreign investors.

The longest tenured issuance will be 15-year bonds to the tune of GHc500 million to be issued on December 18 the same date that the next three-year bond issuance of GHc1,000 will be offered.

Domestic borrowing

Government’s new domestic borrowing for financing its activities has slowed considerably in recent months as the impact of the new tax measures announced at the mid-year budget review as well as expenditure cuts kick in.  During the first 41 weeks of 2018, government issued new cedi denominated domestic debt securities to the tune of GHc31.7 billion of which three-year bonds comprised 11.4 %. By mid-year, government was only slightly behind on its target to lower the fiscal deficit to 4.5% of Gross Domestic Product, down from 5.9% in 2017. This year’s public debt calendar was drawn up based up on the financing needs for the 2018 budget, domestic debt maturities, the medium term debt management strategy [2018 – 2021], government’s liability management programme and evolving market developments.

By Onajite Sefia