The much awaited energy bond will auction today,[October 24, 2017], after six months of leaving the industry on tenterhooks over the rising energy sector debts.
This is to allow interested individuals and institutions to bid for the bond to be used to clear the estimated 10 billion cedis debt.
The first tranche to raise 6 billion cedis; will be done via a book building approach.
Available information indicates that there will be two bids; one to mature in seven years and the other to mature in ten years’ time.
While the seven-year bid is expected to raise 2.4 billion cedis, the 10-year bid is expected to raise 3.6 billion cedis; totalling the 6 billion cedis for the first tranche.
Bond attracts positive investor confidence
Speaking upon completing the two roadshows for the bond yesterday, Director of Treasury and Markets at Fidelity Bank, Sam Aidoo and Country Head of Global Banking at Standard Chartered Xorse Godzi, representing the lead managers, described the investor confidence as positive.
“We had a roadshow in the UK where we met investors and had another one here in Accra on Monday [October 23, 2017]. If I have to measure the outcome of the roadshow as being one that investors fully understand the structures in detail and fully appreciate what we want to do I think we did fantastically well. You even find investors giving you numbers immediately after the road show,”Director of Treasury and Markets at Fidelity Bank, Sam Aidoo.
His counterpart, Xorse Godzi, Country Head of Global Banking at Standard Chartered Bank couldn’t agree more.
“We had a good participation from local investors and asset managers and that is a very good indication that there is a good level of issuance…it’s going to deepen the local markets of Ghana and it is going to be good for us.”
Interest rate dynamics for energy bond
Even though it is unclear how much investors are requesting in interests, Economist at the University of Ghana Business School, Dr Lord Mensah, maintains that the investors are likely to quote an interest rate estimated at 20 percent to offset any possible losses.
“I don’t foresee anything below the interest rates that the government has been enjoying over the years in terms of its bond issues. I am expecting the rate for this bond to go above that which is about 20 percent.”
On the contrary, a Research Fellow at the Institute for Fiscal Studies (IFS), Mr Adu Owusu Sarkodie tells Citi Business News he is anticipating a strong negotiation by government’s representatives to push the rate down marginally from the 18 percent region.
“The rate could be higher or lower than the estimated 18 percent depending on how investors perceive the strength of the economy. But I am hoping that the rate is lower than the 18 percent.”
It is still unclear how the IMF wants government to treat this bond; whether a sovereign one or a corporate one.
Sources close to the deliberations have hinted to Citi Business News that a decision on this may be concluded this week.
Corporate bonds pick up across sub-Saharan Africa
Studies have shown that corporate bonds issue in sub-Saharan Africa have increased both in size and the number of countries with active markets; from zero percent of GDP in 1989 to over 1.3 percent of GDP in 2010.
Hence Ghana’s decision to issue a corporate bond falls in line with developments in the regional market.
Former Finance Minister, Seth Terkper has also argued strongly that the government issues the bond on the back of power companies with strong financial statements.
He, however, gives suggestions to make this plan work.
“There are government entities that borrow for infrastructure development and that is what we want VRA to do. The VRA, for instance, paid for the Akosombo Dam and it is capable of paying for its projects if we put its balance sheet back to shape and that should be the goal of every SOE,” he suggested.
With the successful payment of the debts, banks’ rising NPLs which recorded 8 billion cedis in June this year, are expected to reduce significantly.
This will also position the banks strongly to offer credit to other sectors for their growth and expansion.