Investors keen on Ghana’s bonds ; But analysts raise concerns
A number of roadshows to signal Ghana’s fourth foray into the international bond market for US$1 received a major boost, with global investors showing keen interest in purchasing the country’s bond, the Finance Minister, Mr Seth Terkper, said.
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The minister, who had just finished a presentation in a non-deal roadshow in New York, is confident that the bond, when floated in September, this year, will be oversubscribed.
“Investors are keen to receive us when we finally approach them, because already they have seen the medium-term prospects of the country based on our presentations, and we are confident that they are more than ready to receive us,” he told the Graphic Business in an interview.
Mr Terkper, who led the government delegation to the International Monetary Fund (IMF)/ World Bank Spring Meetings in Washington had already made a stopover in London for a non-deal roadshow to showcase the country’s growing economic prospects.
IMF okays bond floatation
Already, the IMF has stated that Ghana’s programme with the fund would likely unlock lending from other bilateral institutions.
At a news conference at the spring meeting in Washington, the Managing Director of the Fund, Ms Christine Lagarde, said, “Our programme with Ghana will clearly have a catalytic effect.
"When a country has signed a programme, it generally always triggers on the part of other bilateral institutions, of other bilateral lenders, financing that sometimes had been frozen or locked," she said at the conclusion of a meeting of the IMF's steering committee.
Earlier this month, the fund approved a three-year US$918 million financial assistance deal for Ghana aimed at restoring economic stability and boosting job growth.
Watching Ghana’s space
Global investors have been eager to purchase the country’s bonds for higher yields amid low returns in mature markets.
It is a sign of the investors’ endorsement of the country’s buoyant economic prospects. The developed world has been rocked by a series of economic and financial crises, while Africa has displayed steady growth over recent years, averaging about five per cent per annum. Analysts believe the incentive for investors is solely the prospect of higher gains.
Eurobonds have also given the country an opportunity to integrate into the global financial markets. Up until recently, according to the African Development Bank (AfDB), access was limited for African countries apart from Morocco, South Africa and Tunisia, which entered the markets in the 1990s.
In addition, bond issuances come with fewer strings attached than money from multilateral institutions. Governments also have more control over where they channel the money.
The other reasons behind the recent surge in borrowing by African countries, according to the IMF, are changes in the institutional environment, such as more flexibility for low-income countries with access to non-concessional borrowing, reduced debt burdens, large borrowing needs and historically low borrowing costs.
Rising concerns
There are serious challenges to Africa’s future in the international markets, analysts have warned. Buyers of African bonds raise concerns about the countries’ vulnerability to commodity prices, political instability, fiscal irresponsibility, lack of reliable statistics and transparency, and poor histories of debt management.
Therefore, sovereign bonds issued by resource-rich African countries are deemed risky assets by some investors.
Recent speculation that the United States (US) Federal Reserve bond-buying programme would end in 2014, along with rising US treasury yields, sparked a sell-off in emerging markets.
Mr Angus Downie, the Head of Economic Research at Ecobank, a pan-African bank, told the Graphic Business in an interview on the sidelines of the IMF/World Bank Spring Meetings in Washington.
“Investors will want higher yields,” he said. Since the beginning of 2014, the Federal Reserve has started cutting back on its bond-buying programme, leading to speculation that this might spark an increase in interest rates.
