The government deposits $ 3 billion in Eurobonds; 7 times oversubscribed

Company News of Wednesday, March 20, 2019

Source: Daily chart

2019-03-20

The government raised $ 3 billion from international financial institutions through a three-tranche Eurobond that drew more proposals than the country had requested.

At the end of a London tour yesterday, the appetite for the sovereign loan of 2019 had grown, which had resulted in orders totaling $ 21 billion, or seven times more than the amount needed.

This increased momentum has enabled book runners to negotiate attractive interest rates on long-term lending instruments.

The government delegation, led by Finance Minister Ken Ofori-Atta, however, agreed to only $ 3 billion, according to the budgeted amount approved in the 2019 budget and the government's economic policy.

Confirmation

The Daily Graphic said the government had issued three separate bonds with a maturity of seven, 12 and 31 years.

A source at the Department of Finance, who knows the transaction but is not allowed to talk about it, said the 7-year bond had an interest rate of 7.875% and the 12-year bond yielded coupons. of 8,125% (interest rate), while the 31-year bond was priced at 8.95%.

Trust

Successful issuance of the bond should boost confidence in the economy and help reverse the current cedi depreciation, which badysts say is a result of portfolio reversals, negative feelings about the planned withdrawal of the fund International Monetary Fund (IMF) and internal rigidities resulting from the recent cleaning exercise of the banking sector.

According to international badysts familiar with Eurobonds in emerging markets, this was the first time that an African sovereign bond attracted this huge appetite, with orders seven times higher than the required amount.

It is also the first time that the country issues a 31-year bond to be repaid in 2050.

Analyst

Professor Peter Quarter, professor of economics, said he hoped the sales results would further strengthen the cedi.

"This will greatly help stabilize the cedi. We have seen the Cedi move from about 5.8 GH ¢ to a dollar at around 5.3 GH ¢ and I'm sure it will even bring it down further, "he said at the time. ;an interview.

Capital flight

Professor Quarter, from the University of Ghana at Legon, said the oversubscription was a confirmation of the current ratings of the economy.

This indicated increased investor confidence in the economy, he said, explaining that all of these should benefit the economy in general.

He noted, however, that a strong appetite for external debt could have a negative impact on the country's debt stock and also increase long-term capital flight.

Capital flight being one of the causes of the current depreciation of the cedi, he said the long-term consequences on the exchange rate could be that the cedi would depreciate further.

Use of funds

According to the 2019 budget, in which the government announced for the first time its intention to raise $ 3 billion in international capital markets, about $ 2 billion would be used to implement this year's budget, while the $ 1 billion remainder would be used for the refinancing of 2023, 2026 and 2030 Eurobonds.

A report of the Parliamentary Finance Committee on the Eurobond showed that of the $ 2 billion used for the implementation of the 2019 budget, about 9.6 billion GHAR would be spent on the management of the country's commitments.

It also shows that about 665.2 million GH ¢ were allocated to the Infrastructure for Poverty Eradication Program (IPERP).

Institutions such as the National Authority for Identification (NIA), the Venture Capital Trust Fund and the National Plan for Innovation and Entrepreneurship are also candidates for the product of the year. Eurobond.

About 106.87 million GH ¢ and 300 million GH ¢ will also be used to support the economic activities of Zongo communities and the Planting for Food and Jobs program, respectively.