Government issues bond on Ghana Stock Exchange

BY: Victor Kwawukume

The government will today issue a five-year long-term bond to raise GH¢500 million through the Ghana Stock Exchange as part of measures to move away from short term instruments and restructure the tenor (maturity period) of the country’s domestic debt.

 The bond, with a face value of GH¢1, is targeted at resident and non-resident investors, especially institutional investors such as pension funds, insurance companies and other long term investment and mutual funds which will have the opportunity to bid for a minimum of GH¢50,000 and thereafter in multiples of GH¢1,000.

The Minister of Finance, Mr Seth Terkper, who disclosed this to the Daily Graphic in an interview, said three financial institutions, Barclays Bank, Strategic African Securities (SAS) and Stanbic Bank, had been selected as the bookrunners (managers of the issuance) of the bond which is expected to mature in the year 2020.

 The minister said in the past, the country raised funds through short-dated instruments such as the 90-day, 182-day treasury bills and the one-year notes, with the longest being five years.

Such durations stifle the government’s ability to finance debts and denies it the fiscal space with which to direct some resources to capital projects.

Overtime, borrowing from the domestic market through short- term instruments has increased the government’s debt servicing cost, as the debts quickly become due. In addition, it denies the private sector of the needed funds from banks, which also use their funds to invest in such assets, a phenomenon commonly known as “crowding out the private sector.”

This bond issue is thus part of a new debt management initiative by the government which seeks to raise funds through long- term instruments, with the domestic ones being bonds, preferably listed on the stock exchange.

Long-term domestic bond

Mr Terkper explained that the current plan was to increase the maturity period (tenor) of the domestic bonds to seven years or more.

The idea, he explained, was to use it to fund capital projects for a long-term period and principal repayment would be done in bullets, that is, a lump sum payment at the end of the five years.

He said that in the raising of bonds for capital or commercial projects, it was not advisable to use short-term instruments since the project would not even be completed by the time the treasuries mature.

“But a long-term bond of 10 years or 15 years is the best option in targeting projects that could pay for themselves in the end,” the finance minister stated.

For that reason, he added, one could consider raising funding from funds such as the pension funds, mutual funds and individual pension funds.

Targeted funds

Mr Terkper said the fund managers could target those funds to be traded on the stock exchange using the same methods that Ghana had been using when it issued sovereign bonds, for instance, on the Irish Stock Exchange.

“The innovation here is using the stock exchange just as we use the sovereign bonds,” he said.

Mr Terkper said the book-building opens tomorrow and that the book would be closed on Thursday when the final pricing and allocation would be done.

He said that settlement and issuance would be done on Monday, November 30, 2015.