T-bills suffer low demand over debt restructuring concerns
Demad for treasury-bills (T-bills) suffered a historic fall in demand last week as the domestic debt restructuring conversation weighed on market sentiments.
The government received total bids worth GH¢1.19 bilion across the 91-day and 182-day tenors and accepted almost all the bids received.
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Investment bank, GCB Capital, said in its weekly economic and stock market update that the uptake for the week fell 10 per cent short of the auction target.
It said the uptake was also four per cent short of the T-bill refinancing obligation due on September 26.
It said the decline in demand was in spite of the fact that money market yields soared above the 30 per cent levels, with the 91-day yield clearing 27 basis points (bps) higher at 30.18 per cent.
“We believe the ongoing conversation about a potential domestic debt restructuring weighed on domestic investors' appetite, which underpins the shortfall in demand for the first time in several weeks,” the investment firm said.
Implications for debt restructuring
Given the heavy exposure of the domestic financial sector to the government, a deep haircut under a potential debt restructuring programme could pose a significant systemic risk and dwindle banks' asset quality.
Thus, the commercial banks, pension funds and insurance companies (which are the dominant holders of the LCY debts) may avoid new offers in the interim, pending clarity on the form of any potential debt restructuring.
Week ahead:
The government targets a gross issuance of GH¢904 million at the next T-bill auction to roll over upcoming maturities worth GH¢786.6 million.
While there are no competing offers this week, demand could be depressed again as investors thread cautiously, holding out for clarity on the modalities of the anticipated debt restructuring.
Secondary market
Aggregate turnover on the secondary bonds market dipped again to GH¢1.45 billion (-17.14 per cent week-on-week) as general investor sentiments weakened, and the market closed in a net offered position.
The 2023 to 2025 tenors dominated activity and accounted for 69 per cent of the aggregate turnover.
We expect domestic fixed income investors to remain extremely short on the curve amidst the prevailing uncertainties pending the release of the debt sustainability report from the IMF, which should clarify the nature of potential debt treatment.
GDP growth
The firm also described the 4.8 per cent growth in the second quarter as surprising but said it shines some light of hope on a troubled economy.
In its weekly economic and stock market update, the firm said the second quarter growth outcome was “a welcome ray of light in an otherwise bleak macroeconomic landscape.”
“However, we believe the full passthrough of the Russia-Ukraine war and the effects of the withdrawn policy support for growth are yet to reflect in the gross domestic product (GDP) numbers fully.
“We expect their lagged impact to reflect fully in second half of 2022,” it said in the update published below.
Fitch downgrade
Fitch Ratings downgraded Ghana's long-term local and foreign currency issuer default rating (IDR) for the third time in 2022 to CC from CCC.
At CC, Fitch rates the Ghana credit eight notches below investment grade in the extremely speculative category, citing the increased possibility of debt restructuring, high debt service burden amidst financing constraints, limited access to external financing and continuous pressure of reserves, among the rating drivers.
IMF negotiations
The Government of Ghana on September 26 resumed the second round of negotiations with the IMF staff towards a fund-assisted programme.
While we await the debt sustainability (DSA) report to inform the approach to debt treatment, whispers of a potential domestic debt restructuring dominated market sentiments in the week ending September 23 and received further tailwind from the Fitch downgrade.
Therefore, the Monetary Policy Committee (MPC) of the Bank of Ghana have deferred the announcement of its September 2022 monetary policy decision to October 7, 2022, awaiting complete information from the latest IMF mission and the DSA Report.
Thus, market sentiments remain bearish, with bond yields surging near the 40 per cent levels amidst renewed cedi depreciation pressures.
Given the sizeable external debt exposure, the depreciation pressures will further worsen the total debt portfolio.
Refinancing risk
The government faces a high refinancing risk as the October 2022 two-year paper matures in the week starting October 3.
It comes in the midst of the potential domestic debt restructuring concerns.
The government is yet to announce a rollover transaction for the October 2022 two-year note (outstanding FV: GH¢2.4bn | Coupon: 18.50%) that matures on October 3.
However, we believe the prevailing market sentiments are stark against a new offer.
While a two-year rollover offer falls into the sweet spot of the current market (offers relatively short tenor and high yield), cedi bond investors are concerned about the form a potential debt restructuring could take.