The government of Ghana launched a bond to redeem the humongous energy debt owed by the energy industry to the banks.  The Government sought to raise the Energy Sector Levy Act 2005 (ESLA) bond redeem the debt with the banks but the bonds achieved only 56% of expected subscription.  In the same space of time the Government has indicated the issuance of a Dollar (USD) bond expecting to raise $100 million. had a conversation with Anthony Degbato (AD), Head of Asset Management, Strategic African Securities on expectations of the bond.

Mr. Anthony Degbato; Head of Asset Management, Strategic African Securities ESLA Bond fell short of its expected subscription, what in your opinion must have lead to this result.

AD: There are varied issues around this bond.  Every investor looks at risk and reward relationships.  Investors may not have been happy with the treatment of the ESLA Bond in that it was not going to form part of Government debt.  In that case investors would generally feel that the bond is without sovereign guarantee and therefore bears a high risk.  Investors therefore may be putting a higher risk premium on this bond than government is offering.  Looking at the risk/return trade off, investors would have been attracted to such a bond with a higher rate of return probably in the 21-22%, rather than the 19.5% which was offered. : One school of thought about the lower than expected subscription of the ESLA bond was that the banks could not be interested due to the current requirement of capital on them?

AD:  The proceeds from this bond were going to be used to settle the energy debts that have contributed to the NPL and illiquidity situations in the banks.  The bond was not necessarily going into service a ‘bad energy debt’ as the energy levy are going to service the debts anyway.  The proceeds are therefore being used as some kind of receivables.  This is going to be a relief to them and therefore I may differ on that school of thought that banks were not interested in the bond issue. Government is issuing a dollar bond expecting to raise and amount of $100 million to help it manage the economy, what are your expectations for subscription of this bond?

AD: This is also another of Government’s policy to correct anomalies in the economy.  It is a way to mobilise the foreign exchange particularly USD that are not invested in business but held by individuals.  The idea is for Government to take control of those funds to help it to manage the constantly depreciating nature of the Ghana Cedi.  I expect such individuals holding USD both locally and abroad to avail them towards this bond which is giving a coupon rate of 6.25% as it is a good rate.  The previous USD bond issued last year was for 6% and this offers a better rate.  Besides this would be considered part of Government debt which gives investors a level of comfort.  If $94 million was raised last year, it is possible to raise the $100 million this time. Isn’t it likely that these dollars would already be in the banking environment for which the Government indirectly holds them or is it likely they may be held in foreign accounts?


AD: There are two ways to look at it. This is targeted to both residents and non-residents.  It is expected that non-residents especially would bring in investments from foreign sources while residents would consider locking up the foreign currency in the government bond.  Again if the USD of residents held in bank accounts they would not yield any returns but in the bonds they would earn at least the 6.25% offered for this.  This would enable the Government to better control forex environment. Aren’t we having too many bonds issued, increasing our debt stock?

AD: I don’t think so.  In my opinion this is a better strategy for the government to manage her finances.  The government is seen going for debts with longer maturity profiles that would help better manage  finances better.  Government is now using an approach in treasury management which makes it better for it to run the finance.  The longer the maturity the better for the government to take the shots, and it is a better option in my opinion.  In the past when short-dated instruments were issued, the banks would buy and hold rather than giving out those funds to the business community to do business. In your view, do you consider it prudent if one changes Cedis into Dollars to invest in the bond and how do investors get on board?

AD: Yea, I would agree to such a move.  Generally we live in an environment where the Cedi is generally not stable as compared to the Dollar which usually has the rate advantage.  So if an individual thinks they may need Dollars at a later date, they could consider such an option. Of course, if there is the need to realize it, the bonds could always be sold on the secondary market.  The minimum for an individual to invest is $10,000 and anyone who wishes to invest can do so through any bank as most banks are primary dealers or through the Strategic African Securities. Thanks for your time