Ghana sells USD 750mn 10-year Eurobond at 8% yield

By bne IntelliNews July 26, 2013

Ghana sold on Thursday (July 25) a USD 750mn 10-year Eurobond, Reuters reported. The coupon was set at 7.785%, but the issue was priced to yield 8%. The offer, which was managed by Barclays and Citigroup, attracted bids worth USD 2.2bn.

The yield Ghana had to pay was significantly higher than another West African country paid earlier this month – on July 2 Nigeria sold USD 500mn worth of 10-year sovereign bonds at a yield of 6.625% and USD 500mn in 5-year bonds with a yield of 5.375%. Another sub-Saharan African country, Rwanda sold on April 25 a USD 400mn 10-year debut Eurobond with a yield of 6.875%. Moreover, the yield on Ghana’s new Eurobond was considerably above the yield of its previously issued Eurobond, which is currently trading at around 6%. Ghana sold a USD 750mn 10-year Eurobond in 2007, the first in sub-Saharan Africa outside South Africa. The bond was issued at a yield of 8.5%.

Ghana, a large producer of oil, cocoa and gold, is rated B1 by Moody’s, B+ by Fitch and B by S&P. The country’s economy is expanding at one of the fastest paces in Africa. It recorded a 7% GDP growth in 2012 and the International Monetary Fund (IMF) expects its GDP growth to be at 6.9% in 2013 and 6.8% in 2014. But investors’ confidence in the country is affected by its huge budget deficit, which sparks concerns over the servicing of its debt. Ghana’s budget gap widened to 12.1% of GDP at end-2012 from 4.3% a year earlier. The Finance Ministry has projected the shortfall to shrink to 9% of GDP at the end of 2013. For the first four months of 2013, the budget gap was equal was 3.8% of GDP, higher than a forecast of 3%. Public debt increased to 49.4% of GDP in 2012 from 40.8% in 2011. It is also significantly higher than Nigeria’s debt-to-GDP ratio of 18.6%.

Another reason for the higher yields is associated with the recent turbulence on the global financial markets, as worries about the U.S. Federal Reserve cutting back its economic stimulus have caused bond prices to fall and yields to rise, prompting some investors to pull out of some high-yielding assets. According to an unnamed investor, quoted by Reuters, the timing was bad, as Ghana could have paid around 5% had it issued the Eurobond before the selloff of emerging market assets.

Ghana’s government has previously said it would use the proceeds from the bond to partly repay its previous Eurobond and for capital expenditures, chiefly aimed at major infrastructure projects. It bought back on Thursday USD 250mn of the outstanding 2017 Eurobond.

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