Gov't issues 5-yr bond to tame cedi pressure

Government’s decision to re-open a five-year GH¢400million domestic bond has bolstered expectations that the cedi will from this week see one of its strongest runs amid rising pressure on the local currency in recent times.

This has prompted a flurry of speculations in the market with analysts predicting that the cedi will rally strongly against the major trading currencies as foreign inflows deepen on the back of the auctioning of the bond, which is available to both domestic and foreign investors.

A report by RMB Global Markets Research has forecasted that the bond, which will mature in July 2021 at a coupon rate of 24.75percent, will cushion the mounting pressure on the local currency.

“The cedi experienced some pressure last week as the flurry of dollar flows on the back of the auction and positive Consumer Price Index (CPI) numbers thinned out.

“However, we expect to see a stronger cedi this week as the re-opening of a five-year domestic bond maturing on July 20121 should attract some flows to the market,” the RMB report published every week.

The report further added that it expects the cedi to depreciate but at a slower place and that “the unit will settle at 4.05 against the dollar at the end of 2016.”

The cedi, in 2016, has offer a huge relief to investors who have been yearning for a stable currency regime.

It has been able to withstand pressures from market forces since January 2016, thanks partly to regular foreign currency supply, the presence of the International Monetary Fund (IMF), and new FX rules by the Central Bank.

However, recently the local currency has been under some pressure since the government pulled out of the sale of a record fifth Eurobond issue with the cedi rising to as high as 3.95 cedis to the dollar from 3.80 cedis, after government announced it will only “issue new notes at the optimal time and the right conditions.”

So far, the currency has lost about 3percent of its value this year, especially against the US dollar and has been hovering between GH¢3.80 and GH¢3.95 since January. Previous years have seen between 15 to 40 percent currency depreciation.

Due to the new FX rules, the Bank of Ghana from this month is surrendering US$150 million in export proceeds to commercial banks just to shore up the cedi.

In earlier interviews, investment and fiscal analysts have noted that the currency in a long time, will not see substantial depreciations.

Sampson Akligoh, Managing Director of InvestCorp-an investment bank, told the B&FT he does not see a noticeable deprecation of the cedi in Q3-2016, adding, that the current trend is likely to continue.

“Reasonably, the tight monetary policy condition is helping to contain institutional portfolio investors, and the extent to which this will continue depends on policy credibility,” he said.

Government has also announced plans to issue as much as GH¢25.3billion between now and December this year and 90percent of the expected amount, according to the government, is expected to be used to rollover maturing debts.

A statement from the Bank of Ghana said, “In accordance with the Government’s Medium-Term Debt Management Strategies (MTDS), the Bank of Ghana on behalf of the Ministry of Finance, announces for the information of Primary Dealers, Banks, prospective investors in the domestic securities market and the general public, the revised Issuance Calendar for Government of Ghana Securities for August to December 2016.”

The Central Bank’s statement also stated that government would consider accepting a reasonable amount above the target to build buffers which would be used to reduce borrowing.

Per the new calendar, GH¢60million will be issued every two weeks for the 1-Year Note, through the primary auction. Settlement will occur on the first and third Mondays of each month. Also, the two-year Note will be issued monthly through the primary auction with settlement occurring on the second Monday of each month.

The 3, 5 and 10-Year issues will be done through the book-building method, with settlement on the last Monday of each month. Meanwhile the statement forecasts that the GH¢1billion 5-Year Bond scheduled for next month, may be issued partly in a United States Dollar equivalent Bond, with settlement on 12th and 26th September, 2016 for the cedi and US Dollar Bond respectively.