ESLA prepares to issue final energy bonds

ESLA Plc, the dedicated company incorporated by the Government of Ghana to manage the country’s energy sector legacy debts, is now preparing to issue what will almost certainly be its final tranche of bonds, under the bond issuance programme it was established to execute.

The next bond offer, of 10-year bonds worth up to GHc340 million will be the third tap re-opening issuance following the initial issuance, done in November 2017, but which was significantly undersubscribed.

Both re-taps done so far were for 10-year bonds, since these were the ones undersubscribed during the original issuance in late 2017; all the seven-year bonds issued at that time were fully subscribed.

Although no specific issuance date has been announced, it is expected to be very early in 2019.

This will be the third – and most likely the final – tap re-opening, following one done in January 2018 which raised GHc615.948 million and another done in August, which raised GHc264.799 million. Instructively, the most recent issuance was 1.32 times oversubscribed, the issuance target having been set at GHc200 million. All the bids by investors were within the price guidance range of between 19.50% and 20.00%.

ESLA Plc will expectedly leverage current investor enthusiasm for its bonds to issue all of the remaining ones in one go as early as possible since a further interest rate hike by the United States central bank, the Federal Reserve Bank is being expected soon and this would raise the coupon rates being demanded by foreign portfolio investors on medium and long tenured, cedi denominated debt instruments.  However, most of the energy bonds issued so far have been bought by banks in Ghana since the receipts are used by ESLA to pay off the debts being owed them. This enables the banks to replace those non-performing loans with performing investments in bonds and thus frees them from having to make loan loss provisions.

The most recent re-tap bond issuance by ESLA, done in August, has brought the total issuance of energy bonds to GHc5,664.721 million, leaving the company with a little under GHc340 million worth of bonds to be issued to reach the original target of GHc6 billion.

The initial issuance in November saw the target for the seven-year bonds more or less met with accepted subscriptions of GHc2,408.626 million, but the accompanying 10-year bonds issuance was far less successful. This was blamed, by various investment analysts on number of different challenges, ranging from uncompetitive coupon interest rate, to the length of the tenor and even the refusal of government to guarantee the bonds.

However, the success of the two tap re-openings done this year have now got analysts thinking that the initial under subscription of the 10-year bonds was simply because the issuance was too big for the market to absorb in one go at that time when an earlier cedi denominated medium to long term bond issue had stirred up huge controversy both locally and on international capital markets.

ESLA’s energy bonds are being issued to pay off the huge legacy debt incurred by state owned institutions in the energy sector supply chain due to poor power pricing policies. The bonds are being serviced by receipts from special energy levies imposed by government since 2016.

By Toma Imirhe & Joshua W. Amlanu