Expect more corporate bonds - Axis Pensions boss
The Chief Executive Officer (CEO) of Axis Pensions Trust Limited, Mr Afriyie Oware, has predicted an uptick in corporate bond issues in the coming months, as companies prepare to shift appetite for costly bank loans to low cost long-dated debt instruments.
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The development will be an attempt by corporate institutions to try and profit from declining interest rates on the capital market instruments, where rates have virtually halved in the first five months of the year, he told the GRAPHIC BUSINESS on June 21.
With the benchmark 91-day Treasury bill (T-bill) selling at 12.09 per cent and predicted to fall further, Mr Oware said it was obvious that companies would soon shift attention from securing bank loans to bond issues on the Ghana Stock Exchange (GSE) to be able to minimise their financing costs.
“At the moment, if I want to take a commercial loan from a bank, I will be lucky to get 26 per cent,” the Axis Pensions CEO said in reference to the average lending rate, which was at 26.6 per cent in May.
“Compare that to the T-bill rate, which is around 12 per cent. Now, look at the difference in spread; about 14 per cent.”
“What it means is that as an investor, I can invest money at 12 per cent but if I want to borrow, I will borrow at 26 per cent. So, if I issue bonds, all I will do is put some small premium on the T-bill rate and investors will be happy to buy those bonds because of the premium,” he explained.
Whipping up interest
Although a preferred form of raising funds, bond issues by corporate institutions on the GSE has been minimal, mainly due to the relatively new nature of the market to the private sector.
To help reverse the trend, the Deputy Managing Director of the GSE, Mr Ekow Afedzie, said his outfit would soon be engaging the companies on how the exchange could help them out.
“It is something we have realised and we are working on. We plan to do direct discussions with the companies and get to know how best we can help,” he said.
Unlike bank loans, funds raised from bond issues are normally long term based, less costly and can be traded on a stock market like the GSE.
The tenor allows issuers some reasonable amount of time to use the funds to retool and expand.
The Axis Pensions Trust CEO was thus confident an increase in bond issues would strengthen the capacity of companies to reinvest, expand and create more jobs. This will create a rippling effect on economic growth.
“Bond issuance will engender a lot of economic activities. Consider a bank with a balance sheet of GHc120 million but now has available GHc300 million. That bank will lend more, business will be able to have more access to capital. Economic activities will boom and job creation will rise,” he explained
Currently, capital market regulations demand that issuers comply with the Securities and Exchange Commission’s and GSE’s requirements, which are mainly meant to promote fair competition while minimising risks for both investors and issuers.