Government on January 13, 2018 through the Ministry of Finance initiated processes for the issuance of US$ 3 billion in sovereign bonds on the International Capital Market (ICM) under its 2019 international funding programme.

The process began with the request for written proposals from reputable domestic financial institutions and investment dealers licensed by the Securities and Exchange Commission (SEC) to act as Lead Manager, Co-Managers, International Book-runners and Legal Counsel for the 2019 international bond issuance.

In its 2019 budget statement, government outlined its intention to raise up to US$3 billion using a variety of instruments from the international capital market to finance critical capital expenditures, economic growth-generating expenditures and for liability management. The Finance Ministry asserts that its impending issuance is consistent with government’s Medium-Term Debt Strategy (MTDS), meant to adequately finance the budget at the least cost and a prudent level of risk.

Government is expected to explore the possibility and feasibility of issuing one type, or a combination of bonds this year based on market conditions. Finance Minister Ken Ofori Atta says the options comprise Eurobonds, and Century, Green, Panda and Samurai bonds, each of which is a variation of internationally accepted sovereign bonds with specific features.

As a capacity-building measure, the Ministry plans to appoint Ghanaian investment banks and finance houses as Co-managers to assist the Lead Managers in the funding programme. The Ministry will select the Co-managers through a separate selection process.

The Expression of Interest (EOI) is opened to only domestic firms, with at least 51 percent shareholding by Ghanaians.

Government is expected to issue this bond in the early part of 2019, as it aims at closing this initial process towards the issuance by January 25, 2019. This is in line with thinking within government that with the United States Federal Reserve Bank planning further interest rate hikes this year, the earlier Ghana issues its bonds, the lower the coupon rate that investors will demand. Possibly Ghana could issue its planned bonds before the next interest rate hike by he Fed.

Instructively, even a one percent increase in he coupon rate would see Ghana paying an extra US$30 million per annum on US$ 3 billion bond issuance. This would amount to an additional US$300 million over a ten year tenor and US$450 million over a 15 year tenor.

2018 Bond Issue

The impending sovereign bond issuance will be the second done on the international capital market by the incumbent government which in March, 2018 had secured Parliamentary approval to access the ICM for its first time to raise US$2,500.0 million for budgetary purposes and liability management.

Notwithstanding global capital market turbulence last year suffered by emerging market economies in general, government issued US$2,000.0 million in Eurobonds in May, consisting of US$1,000.0 million each of 10- year and 30-year instruments. The 10-year bond was priced at 7.625 percent, while the 30-year bond was priced at 8.627 per cent. These compare favourably with previous sovereign bond issues under predecessor Ghanaian administrations; the 30 year bond was twice the tenor of the previous longest tenor of 15 years and the 10 year bond carried a lower coupon rate than any of the previous five Eurobonds the country had done.

Lead Managers

The lead manager for this year’s bond issuance programme is required to have at least a ten year track record of fixed income transactions in Emerging Markets (EM).

The lead manager is expected to provide the best possible market conditions for the stated instruments and the timing of the financing options proposed for the funding programme, taking into consideration the particular factors that may affect market acceptance of Ghana’s issuances.
Legal Counsel

The local Legal Counsel will be responsible for ensuring compliance with all Ghanaian legal requirements, as well as review of the Transaction Documents and the Prospectus; Liaising with the International Transaction Counsel and the Underwriters Counsel in respect of all Ghanaian legal requirements; Assisting the due diligence process; and Issuing a legal opinion to the Lead Managers.

Co-Managers

The co-managers for the programme will need to provide underwriting capacity and distribution and marketing capabilities locally and internationally. To this end it must provide evidence of bond issues co-managed by the firm during the last five years.

Furthermore, the firm must show evidence of secondary market activities in support of the development of the domestic fixed income market and statistics of its trading volumes over the last five years.