Ghana sold $1 billion of bonds less than a week before the arrival of an International Monetary Fund mission intended to help bring stability to an economy battered by the world’s worst currency rout.
The West African nation priced the amortizing notes due January 2026 to pay 8.25 percent, or 5.72 percentage points more than similar-maturity U.S. Treasuries, according to data compiled by Bloomberg. Barclays Plc, Deutsche Bank AG and Standard Chartered Plc managed the sale.
Investors demanded the second highest yield on a sovereign dollar bond this year as Ghana’s rising debt burden spurred Moody’s Investors Service to cut the nation’s credit rating in June. The country has turned to the IMF for help combating fiscal overruns, waning foreign exchange reserves and rising inflation (GHCPALLY) that have fueled a 35 percent slump in the cedi against the dollar this year.
“Despite current fiscal challenges, investors saw fundamental long-term value in the Ghanaian economy,” Finance Minister Seth Terkper said in a e-mailed statement yesterday. “We have always emphasized that the mid-term prospects for Ghana were bright and with the coming on board of the IMF, we hope to come out of our short term challenges pretty soon.”
African nations from Senegal to Kenya have accessed international capital markets this year as borrowing costs dropped to a 15-month low in August, according to JPMorgan Chase & Co. Zambia sold $1 billion of securities in April to yield 8.625 percent, data compiled by Bloomberg show. Ghanaian bonds have returned less than the emerging-market average in 2014 as the country raised its budget-deficit forecast.
The premium investors demand to own African debt over U.S. Treasuries was 2.71 percentage points yesterday, according to JPMorgan indexes.
Inflation accelerated for a 12th month and Ghana’s currency weakened the most in the world after Ukraine’s hryvnia. The International Monetary Fund may come to a resolution with Ghana on technical and possible financial assistance by November, Deputy Finance Minister Mona Quartey said in London on Sept. 5.
“Ghana has one of the highest yields in emerging-market external sovereign debt outside of the trio of Venezuela, Argentina and Ukraine,” Alexander Moseley, a senior portfolio manager in New York with Schroders Plc, said by e-mail yesterday. “At this yield, Ghana’s new issue shows that there are investors who believe they are compensated over 10 years for a very weak fiscal profile.”
An IMF mission will be in Ghana Sept. 16 to Sept. 25, Ismaila Dieng, a spokesman for the Washington-based lender, said in an e-mailed response to questions, declining to comment on the bond sale.
Moody’s Investors Service cut Ghana’s rating on June 27 to B2, five levels below investment grade. Government spending, including civil-servant pay increases, and lower revenue from key exports such as gold weighed on the country’s fiscal deficit, which was forecast in July to reach 8.8 percent of gross domestic product this year from an earlier target of 8.5 percent.
The bond sale “shouldn’t change the nature of their talks with the IMF as important reforms have to be made to diminish the impact of debt-servicing cost, public-sector wages and subsidies,” Albin Kakou, a money manager at Silk Invest Ltd. in London, said by e-mail yesterday.
The issuance will have three equal amortizations, with repayments in January 2024 and 2025 before the final one in 2026.
“The pricing is decent, but we didn’t take part as it is a bit too risky for us,” Angelo Rossetto, a bond trader at GMSA Investments Ltd. in London, said by e-mail yesterday. “Ghana fiscally is not as sound as other African nations.”