Government’s bid to launch its fourth Eurobond has failed after foreign investors have ditched the bond.
Government was forced to abandon the bond issue after most investors showed poor interest, while the few that did offered a much higher yield than expected citing poor economic fundamentals for their move.
Top government officials led by Finance Minister Seth Tekper on Friday ended talks with potential investors seeking to get them to patronize the country’s next Eurobond when issued.
But industry players had cautioned government prior to the road show that this year’s Eurobond will attract a higher yield than previous ones.
Last year Ghana’s rate for its third Eurobond was higher than the rate of 7.875 issued on the same figure the year before after it hit 8.125%.
Ghana was looking to pay not more than 9.5 percent yield for this year’s bond, but investors were demanding 11.5 percent.
Ghana issued its first Eurobond, a 10-year Eurobond eight years ago at which she raised US$750million from investors at a coupon of 8.5 percent.
There are currently three Eurobonds outstanding, with maturity profiles of October 2017 for the first bond of US$531million; August 2023 for the second bond of US$1billion; and January 2026 for another US$1billion.
Parliament in July, 2015, approved a request by government to raise an amount of US$1.5billion from the European Bond Market.
Proceeds from the Eurobond was to be used to support the 2015 budget as well as service the country’s growing debt.
Ghana’s total debt stock increased by GHc5 billion more, between May and June 2015.
According to figures from the Bank of Ghana, the country’s total debt stock now stands at GHc94.5 billion, representing 70.9% of Gross Domestic Product (GDP).
The International Monetary Fund (IMF) report after reviewing Ghana’s performance under the Extended Credit Facility program said, Ghana’s total public debt now exceeds pre-HIPC levels.
The IMF is projecting that Ghana will end the year 2015 with a 75% debt-to-GDP ratio.
Ghana’s total public debt in the first half of the year has increased consistently by about GHc15.1 billion, growing from GHc79.4 billion in January, to GHc94.5 billion in June.
Implications on cedi
Currency analysts are warning the postponement of the Eurobond may spell doom for the cedi.
This is because proceeds from the Eurobond together with that of the 1.8 billion dollar cocoa syndicated loan was expected to boost the performance of the cedi which has experienced some level of stability against major trading foreign currencies for some weeks now.
Government is relying on proceeds from the two to stabilize the cedi as the festive season approaches where demand for dollars will increase and hurt the cedi.
The 1.8 billion dollar cocoa syndicated loan cash is however expected to hit the accounts of the Bank of Ghana this week.
It still remains unclear however the exact date when Ghana’s fourth Eurobond will be issued.
But government in a press statement last week said it will continue to consider issuing the bond subject to market conditions.
Credit: Citi Online