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Desperate Ghana succumbs to record high interest rate on $1bil Eurobond Issue

The government decided to go to the international market to raise 1.5 billion dollars to retire maturing debts, paramount amongst which is the first Eurobond govnerment issued in 2007.

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Ghanaian government has caved under pressure and has succumbed to the highest interest rate the country has ever gotten in a Erobond Issue, in order to raise $1 billion on the international money markdet.

Related: > Analysts' Curse Investors ditch Ghana's $1.5 bil Eurobond; Govt leaves with nothing

The government decided to go to the international market  to raise 1.5 billion dollars to retire maturing debts, paramount amongst which is the first Eurobond govnerment issued in 2007.

The government then started a roadshow two weeks ago to engage potential investors, only for the issuance to be grossly under subscribed and also at such exorbitant interest rate of 11% annual interest payment.

Related: > Economists' Corner Ghana’s 2015 Eurobond; Overview, prospects and challenges

The minister of finance and the team decided to suspend the roadshow, only to resume two days later, agreeing on a marginally tampered down rate of 10.75 %, which investors interested leading them to offer 3 billion dollars.

However, at the rate of 10.75 percent government decided to take 500 million less that what it went there for.

This rate is the highest government has ever gotten for a Eurobond issue since it started visiting the European bond market in 2007. The previous rates of the last five issues have been an average of 7.5 and 8 percent.

Analysts like Sydney Casely-Hayford believe that the increased interest rate shows that  confidence in the Ghanaian economy has waned drastically. He also believes that government was right in suspending the bond issue and should not have government should not accepted the rate.

 The Minister of Finance , Seth Terkper in a statement indicated that the Eurobond had been oversubscribed by about one hundred percent.

He said contrary to reports that invested had rejected the bond, it was issued after an eight-day roadshow that took the Ghana team, to five cities in the UK and the US.

According to the Ministry, Ghana has now become the first sub-Saharan African country, outside South Africa, to issue a fifteen-year bond. Ghana priced and will issue the bond at a coupon rate of 10.75 percent. This is higher than the previous one which had coupon rates of 8 and 8.5 percent for its two billion dollar- bond issued.

According to the Minister, the World Bank partial guarantee of four hundred million dollars, enabled Ghana to borrow on reasonable terms, in a rather difficult market. The Governor of the Bank of Ghana, Dr. Henry Wampah at the end of the pricing in New York expressed his satisfaction with the bond issue and the processes that led to its success.

The bond is a soft amortizing one with a tenure of fifteen years, to be paid off in 2028 and 2029. About $334 million out of the total will be paid later in 2030. The proceeds would be used for the refinancing of maturing domestic debt.

 It would be recalled that Parliament approved an amount of up to US$1.5 billion for refinancing of existing debt and for capital expenditure.

 

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