Ghana sold a $750 million 10-year Eurobond on Thursday in its second foray into international bond markets but paid a premium to investors wary of its fiscal and current account deficits.
The West African producer of cocoa, gold and oil issued the bond at a yield of 8 percent. The order book was $2.2 billion, around three times the issue size, Finance Minister Seth Terkper told Reuters.
It also bought back $250 million of its outstanding 10-year issue due in 2017, Terkper said.
Ghana is one of Africa’s brightest economic prospects due to its rapid growth rate and stable democracy and has also attracted foreign investors to its domestic bond market.
The economy is set to grow by 8 percent this year.
The Eurobond yield stands at a premium to the 2017 instrument, currently trading at around 6 percent, suggesting investors were unwilling to overlook the fiscal picture.
Ghana is trying to contain a budget deficit that surged to 11.8 percent of gross domestic product in 2012, up from 4 percent in 2011, partly as a result of public wage increases.
“This (yield) suggests that Ghana offered a decent premium to compensate investors for the risks associated with the country’s fiscal and macroeconomic imbalances,” said Samir Gadio, emerging markets strategist at Standard Bank.
President John Mahama’s government, which won elections December, says it aims to reduce the deficit to 9 percent of GDP in 2013 in a country that is the world’s second largest producer of cocoa and Africa’s biggest gold producer after South Africa.
Terkper and central bank Governor Henry Kofi Wampah played down any impact of the macroeconomic picture on the bond yield and said external factors accounted for any premium.
“We cannot say the coupon rate we paid was based on Ghana’s risks. It’s primarily about the unfavourable general conditions globally,” Wampah told Reuters, adding the coupon was 7.875 percent.
The country could have paid around 5 percent had it issued the Eurobond before a selloff in emerging market assets that followed comments by Federal Reserve Chairman Ben Bernanke earlier this year, according to one investor. The yield on the 2017 bond traded as low as 4.24 percent in April.
“What alarmed us as investors is the fact that the timing was bad,” said the investor, who declined to be named. “Based on our analysis, the opportunity cost loss is at least $100 million on a net present value basis. That’s four district hospitals if you want it in social terms.”
Ghana’s main opposition party is challenging the election result in a long-running Supreme Court case and blamed the government for the bond premium.
“We need to get our fiscal house back in order. We have to reduce the deficit and get our debt under control,” said Mark Assibey-Yeboah, finance spokesman for the New Patriotic Party.
Ghana’s Eurobond issue followed on the heels of African peers Zambia, Nigeria and Rwanda who have also tapped investor appetite for high-yielding assets in the past year.
Its debut $750 million 10-year bond launched in 2007, was four times oversubscribed and was issued at a yield of 8.5 percent.
Ghana is rated B by Standard and Poor’s, B1 by Moodys and B+ by Fitch, which revised the country’s outlook to negative from stable after the government announced a surge in its deficit.
“The fiscal situation and the external account are major sources of concern for us and the deficit management. We don’t see a turnaround happening this year and it’s not clear how it will be achieved,” Edward Al-Hussainy of Moody’s ratings agency told Reuters.
Besides the budget deficit, Ghana’s current account shortfall has also expanded, to $4.92 billion or 12.3 percent of GDP, from $2.15 billion in 2007.
Public debt increased to 49.4 percent of GDP in 2012, from 40.8 percent in 2011, higher than peers such as Nigeria which has a debt-to-GDP ratio of 18.6 percent.
The government plans to use the bond’s proceeds for capital expenditure and refinancing public debt to reduce the cost of borrowing.
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