Govt cautioned on financing gap ahead of Eurobond issue

Government has been cautioned ahead of its move to raise about $750 million Eurobond later this year due to Ghana's public debt which hit 71.4 percent in December 2015, as well as its inability to secure an external guarantee.

A latest report released by Bloomberg Intelligence pointed out that government may face tougher times as failure to meet its Eurobond target would leave a $750 million hole in the 2016 budget.

“It could be expensive to fill. The Treasury is already paying interest rates close to 25% on bills and bonds in the domestic market. This means that the government would likely need to reduce the budget deficit beyond the targeted net borrowing of 4.8% of GDP this year, if the Eurobond market remains closed for Ghana,” the report warned.

According to the report, the debt stock and government's inability to get external guarantee may push investors to go for a higher yield or compel government to cut down on the fund expected.

More worrying is that, government intends to use $250 million of the bond proceeds to repay some of its debt which must be cleared.

Another challenge is government's plans to cover more than a third of its total borrowing requirement through the Eurobond issue.

Ghana's most recent Eurobond offering in October 2015 was issued at a yield of 10.75%, even with a World Bank guarantee for $400 million of the $1 billion issued.

Government issues domestic bond
Meanwhile, on the domestic front, the Bank of Ghana (BoG) has issued a 500 million Ghana cedi bond today, May 26, 2016  to help government raise funds to restructure its debt and maturity settlement.

A statement copied to Citi Business News indicated that, the move is in accordance with government's securities for May, 2016;  which is at  a 3-year  fixed rate bond  through the auction process.

According to the statement, the instrument will be issued at par, bearing a coupon rate equal to the highest competitive bid accepted at the auction, and shall carry throughout the term of the security.

The bond, which has a minimum bid of  GH¢50,000, and multiples of GH¢1,000 thereafter  shall have a face value of one Ghana cedi.

–
By: Lawrence Segbefia/citibusinessnews.com/Ghana