Ghana returned to the International Debt Capital Markets as the first Sub-Saharan African Sovereign to issue in USD since the onset of the Covid-19 pandemic, achieving a record size in excess of US$3 billion and enhancing its market access through the innovative use of a 4-year Zero-Coupon Tranche.
The issuance was 2x oversubscribed at its peak, commendable amid a global pandemic. The proceeds will support the budget deficit by funding growth-oriented expenditures and conducting liability management.
Despite the looming risk of a possible third wave of COVID-19 infections across Europe, volatile market conditions, and global trade disruption from the Suez Canal, Ghana saw strong demand for its sovereign bond offering, which peaked at over US$6 billion.
The country’s consistent ability to raise multi-billion-dollar financing and this pioneering use of a 4-Year Zero tranche is a testament to its hard-won credibility with investors, strong growth prospects, and disciplined fiscal consolidation efforts in 2020.
Ghana is the first Emerging Market Sovereign to add a zero-coupon bullet tranche to its bond financing portfolio. This is significant as it enables the Government to create fiscal space to build the economy back better.
Commenting on the bond, Ken Ofori-Atta, whose re-nomination as Finance Minister, after President Akufo-Addo’s re-election last December, was also approved by Parliament on Monday, said, “This historic bond issuance is a strong signal that investors have confidence in our plan for debt sustainability, economic recovery, and growth and that Ghana remains a Pillar of Stability”.
This Eurobond transaction was concluded on Monday-March 29TH 2021, after a series of fixed-income virtual meetings held locally across three (3) days with Investors from the United States, United Kingdom, Europe, Middle East, and Asia.
The transaction comprised US$525 million 4-Year Zero Coupon, US$1 billion 7-year Weighted Average Life (WAL), US$1 billion 12-year WAL, and US$500 million 20-year WAL. The traditional Eurobonds priced at 7.75%, 8.625%, and 8.875%, respectively.
A zero-coupon bond is a bond that does not make periodic interest payments during the tenor of the bond but is sold at a discount to its value at maturity.
Ghana’s four (4) year zero coupon bond is an innovative market-oriented solution to address post-covid- 19 challenges and improve the cash flow required for debt servicing.
The debut 4-year zero-coupon bond was oversubscribed by 2X, despite being the first of its kind to be issued by an Emerging Market sovereign, further demonstrating investors continued support for Ghana’s transformation story and strong fiscal consolidation efforts.
Part of the proceeds shall be used for domestic liability management. “For example, using US$400m of the zero-coupon bond to refinance domestic debt with an average interest rate of 19% will net Ghana savings of some $200 million over the next four years,” Mr. Ofori-Atta explained.
The 20 Year Tranche, which is priced at 8.875% fills a gap in Ghana’s yield curve, ensuring that Ghana now has a well-defined yield curve with issuances across the curve from 4 years to 41 years.
Ghana is projected to maintain positive economic growth of 0.9% in 2020, representing one of the few “pockets of resilience” on the continent.
In 2021 and over the medium term, the Government expects GDP growth to average 5% and the deficit to decline to under 5% by 2024 ensuring debt sustainability.
This will be achieved through the GHS100 billion Ghana CARES programme that will provide the fiscal stimulus to drive growth and economic transformation.
Also, Government has committed to implementing comprehensive measures including the introduction of e-taxation to increase domestic resource mobilization; the deployment of digital platforms to engage local communities in the oversight of public spending; and efforts to strengthen tax administration systems to identify, track and curb illicit financial flows (IFFs).
This reflects the exemplary leadership of the Nana Addo Dankwa Akufo-Addo-led Government in handling the COVID-19 pandemic.
Ghana successfully raised US$2 Billion in 2018, US$3 Billion in 2019, and US$3 Billion in 2020. Monday, 29th March’s successful bond issuance should boost business confidence as the Government looks to stimulate the economy and increase revenue through what it calls “burden-sharing” for “enhanced profit sharing.”
The Joint Lead Managers for the transaction were BofA Securities, Citi, Rand Merchant Bank (RMB), Standard Bank, and Standard Chartered Bank. They were supported by CalBank PLC, Databank, Fidelity Bank, IC Securities, and Temple Investments as Co-Managers.