US$1.5 billion from the European Bond Market to support the 2015 budget and refinance domestic and external debts has been approved
Parliament has approved a request by the government to raise US$1.5 billion from the European Bond Market to support the 2015 budget and refinance domestic and external debts.
About US$500 million of the money raised will be used for liability management, while the remaining US$1 billion will be used to support programmes and projects under the budget.
The Finance Minister, Mr Seth Terkper, made the request for the approval of the 2015 Eurobond Financing Plan when he presented the Supplementary Budget for the 2015 financial year in Parliament last Tuesday.
According to a report of the Finance Committee of the House, the bond issue was to continue the diversification of the country’s sources of funding.
The report, signed by its Chairman, Mr James Klutse Avedzi, indicated that the proposed 2015 bond transaction had been designed to achieve the government’s refinancing objectives and provide cheaper and longer term resources for financing the 2015 budget.
It said the maturity profile of the public debt indicated that currently 75 per cent of domestic debts was short to medium term, with short-term debts constituting 39 per cent as of December 2014.
In addition, there were currently three Eurobonds outstanding, with maturity profiles of October 2017 - US$531 million; August 2023 - US$1 billion, and January 2026 - US$1 billion.
According to the report, the Finance Minister told members of the committee that the current maturity profile of the country’s domestic debts posed a number of challenges, including high risks associated with frequent roll over of short and medium-term debts because of volatile interest rates.
Further, it said the current high domestic interest rate also indicated that roll overs were increasing the debt services component of expenditure.
It quoted Mr Terkper as pointing out that the impact of the sovereign bond issue would be relatively neutral with respect to the overall debt stock, as it would mostly replace debt that was already included in the public debt stock.
Furthermore, it said portions of the proceeds that would be used to finance capital expenditure in the 2015 budget would be in lieu of the previously projected domestic financing which was even more expensive.
Uniqueness of bond
On the uniqueness of the bond, the report said the Finance Minister told the members that the structure of the proposed bond would differ from previous Eurobonds in two ways.
“The first bond issue will be backed by sinking fund to be funded from the portion of the excess of the Stabilisation Fund earmarked for debt amortisation.
The amortisation and sinking fund plan backed by the Petroleum Revenue Management Act, the minister added, will smoothen the redemption obligations between 2023 and 2026,” it said.
The second unique feature, it again quoted the minister as saying, was that the bond issue would be backed by the World Bank Policy
Based Guarantee which would enable the bond to be issued with a higher rating than the current sovereign guarantee, thereby reducing the interest rate.