Finance minister says issue oversubscribed
* May boost government’s position in next week’s IMF talks (Adds quotes)
By Matthew Mpoke Bigg and Kwasi Kpodo
ACCRA, Sept 11 (Reuters) – Ghana sold a $1 billion Eurobond on Thursday at a coupon rate of 8.125 percent, lower than analysts had expected given the fiscal difficulties faced by the West African producer of cocoa, gold and oil.
The country is a rarity in West Africa due to its record of political stability and sustained strong economic growth, but it is wrestling with escalating inflation, a falling currency and a stubbornly high budget deficit.
The bond was oversubscribed with orders of up to $3 billion, said Finance Minister Seth Terkper, who was in New York for the bond roadshow.
Ghana sold Eurobonds in 2007 and in 2013, when the yield was 8 percent, but analysts expected a higher rate this time. The rate reflected the appetite for relatively risky sovereigns given lower yields in developed markets, they said.
“Investors saw fundamental long-term value in the Ghanaian economy. 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,” Terkper said in a statement.
Ghana is set to begin talks with the International Monetary Fund on Tuesday on an assistance programme aimed at restoring fiscal stability and promoting economic transformation.
The bond is a soft amortising bond, amortising in years 2024, 2025 and 2026 with principal repayment in three instalments of $333 million in 2024 and 2025 and $334 million in 2026, Terkper said.
The timing of the bond is the subject of intense interest, given the imminent IMF talks.
Ghana’s currency, the cedi, fell around 40 percent against the dollar between January and August but has gained ground in the weeks since the IMF announcement, in part because of that and the expected Eurobond, traders said.
The local unit closed higher at 3.500 to the dollar on Thursday after hitting a record low of 3.9000 in July.
The Eurasia Group political risk consultancy said the government was seeking to play investors and the Fund against each other.
“Its (the government’s) strategy is to use its recent IMF outreach to bolster investor confidence on the eve of its bond issuance while simultaneously leveraging the Eurobond to strengthen its negotiating position with the Fund,” Eurasia said in a research note. Government officials have denied this.
The bond is likely to be seen as successful, given that it was oversubscribed and sold at a lower rate than expected. This could buy the government some breathing room as well as a much-needed source of debt finance.
“The yield that they sold at is quite good considering that they have all sorts of economic imbalances. There is a strong demand from developed economy investors that highlights how bad returns are for developed economy investments,” said Angus Downie, head of economic research at Ecobank, a pan-African lender.
“It gives them a stronger negotiating position with the IMF,” he said.
Ghana’s Eurobond will likely have little direct political impact but it could feed into economic calculations in the run-up to 2016, when President John Mahama may seek a second four-year term after a knife-edge vote in 2012.
Opposition finance spokesman Mark Assibey-Yeboah attributed the lower-than-expected yield to the availability of cheap money globally rather than to the economy’s underlying strength.
“Our troubles are not going away. People are still looking at our fiscal situation,” Assibey-Yeboah of the New Patriotic Party told Reuters.