Ghana makes history with Africa’s first ever zero coupon Eurobond

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Ghana on Monday made history as the first ever country on the African continent to issue zero coupon bond on the international debt capital market.

The country was also the first in Sub Saharan Africa to issue a Eurobond in United States Dollars (USD) since the onset of the Covid-19 pandemic.

This follows the government’s successful debut into the international debt capital markets, securing $3 billion from an oversubscribed bond book value of $6 billion.

According to a statement from the Ministry of Finance, proceeds from the bond will support the budget deficit by funding growth-oriented expenditures and conduct liability management on both external and domestic bonds.

Government in its 2021 budget announced its intention to execute a programme aimed at raising up to $5 billion through Eurobond, Diaspora bond, Sustainable bond and Syndicated loans.

With the Eurobond issuance, the government has the chance of either going back to the market to raise additional Eurobond or explore the three other options, in case it intends to secure more funds from the international debt capital markets.

Credibility

Ghana successfully raised US$2 billion in 2018, US$3 billion in 2019 and US$3 billion in 2020. The 2021 bond issuance comes after a series of fixed-income virtual meetings held locally across three days with investors from the United States, United Kingdom, Europe, Middle East and Asia.

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The transaction comprised four tranches – US$ 525 million 4-Year Zero Coupon, US$1 billion 7-year Weighted Average Life (WAL) priced at 7.75per cent, US$1 billion 12-year WAL at 8.625 per cent and US$500 million 20-year WAL with a coupon of 8.875 per cent.

According to the Ministry of Finance, the successful issuance of the bond is testament to investors’ renewed confidence in the Ghanaian economy and its managers.

Despite the looming risk of a possible third wave of COVID-19 infections across Europe, generally more volatile market conditions and global trade disruption from the Suez Canal, Ghana has seen strong demand for its sovereign bond offering, which was oversubscribed at over USD 6 Billion.

“Ghana’s consistent ability to raise multi-billion-dollar financing and pioneering use of a 4- Year Zero tranche are a testament to Ghana’s hard-won credibility with investors, strong growth prospects and disciplined fiscal consolidation efforts in 2020,” noted the Finance Ministry’s statement.

Zero Coupon

According to the statement, Ghana is “the only first Emerging Market Sovereign to add a zero-coupon bullet tranche to its bond financing mix, enabling it to create fiscal space to build back better”.

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Ghana’s debut 4-year zero coupon bond was oversubscribed by two times, despite being “the first of its kind to be issued by a West African sovereign”.

This, according to the Finance Ministry, demonstrates investors continued support for Ghana’s transformation story and strong fiscal consolidation efforts.

“Zero coupon bonds are bonds issued without any interest but trade at discount. Thus, unlike other coupon bearing bonds, Ghana will not pay any interest on the four-year zero coupon. The only debt obligation that the government of Ghana would have to honour will be the face value of $525 million on maturity,” the Ministry explained.

According to government, the four-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. Part of the proceeds shall be used to refinance more expensive domestic debt that has average interest rate of 19 per cent.

“For example, using US$400m of the zero-coupon bond to refinance domestic debt with an average interest rate of 19per cent will net Ghana savings of some $200 million over the next four years,” Finance Minister Ken Ofori-Atta has explained.

According to Mr Ofori-Atta, the 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”.

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Growth

Ghana is projected to maintain its positive economic growth of 0.9 per cent 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 five per cent and the deficit to decline to under five per cent by 2024, ensuring debt sustainability.

This is expected to be achieved through the GHS100 billion Ghana CARES programme that will provide the fiscal stimulus to drive growth and economic transformation.

Also, the government has committed to implementing comprehensive measures to get the required resources to carry out its development agenda. These include 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).

According to the Finance Minister, this reflects the exemplary leadership of the Akufo-Addo-led government in handling the COVID-19 pandemic and its associated challenges.

 

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