Gov’t bond issuance to tease-out private sector

The successful issuance of government’s maiden 10-year bond could tease-out the interest for long-term financing by the private sector, says Jeffery Ken Baiden, Chief Investment Officer at Nimed Capital,

"Some blue chip companies in Ghana are already enjoying long-term funding, however, the current bond issue will tease-out the interest for long-term funding as banks and other finance houses advance short-term funds," he said.

An analyst, who wants to remain anonymous, also noted that reputable, well-managed firms with healthy balance sheets and good commercial prospects can begin to see long-term domestic bond issuance as a viable corporate financing alternative.

"The cost, however, would be a deterrent in the short-term, given current levels of inflation and interest rates," adding that, "lower interest rates will be realised only if inflation is brought down considerably and the crowding-out effect of government borrowing is minimise."

Sampson Akligoh, Managing Director of InvestCorp-an investment bank, also told the B&FT that this bond will really be supportive in providing that benchmark for private sector borrowing.

But, he noted that, the extent to which it will influence longer to medium-term private sector borrowing will be sector and company specific. "Risk vulnerabilities are really different for public and private sector balance sheets, and investors view it differently."

He cautioned that despite the success of the maiden bond, the nation still has a lot to do and vulnerabilities still exist in the short-term.

"We must anchor inflation rate, currency and interest rate expectations to the downside over the medium to long-term to realise that permanent shift and l think we still have vulnerabilities that will make this difficult in the short term," he said.

With interest rate on government securities seeing a marginal drop this year, the 91 and 182-day Treasury Bill has averaged 25 percent for the past five years, with the Central Bank’s Policy Rate held at 26 percent since the last quarter of 2015.

These indicators have seen universal banks’ lending rate average 28-30 percent with Non Bank Financial Institutions (NBFIs) averaging between 40-70 percent per annum, and these rates have seen credit to businesses significantly drop year-on-year and Non Performing Loans (NPLs) rising to 19.1 percent in July, 2016, up from 13.1 percent in July 2015.

According to the Bank of Ghana’s September Financial Stability Report, banks offered GH¢28.1billion in loans and advances as at end-July 2016, recording a lower annual growth of 12.1 percent, compared with 24.1 percent growth in July 2015.

The government raised a total of GH¢438 million (US$110 million) in its ten-year bond at a fixed rate of 19percent. Though the government initially announced it was hoping to raise GH¢200million, the bond drew in bids to the tune of GH¢726 million, which made the government settle for GH¢438million.

As part of the government’s revised calendar for August to December this year, where it intends to raise up to some GH¢25.3 billion, the successful issuance of the bond would go a long way to boost government’s long term debt management strategy, which, among other things, is focused on minimising and/or replacing expensive shorter dated instruments with longer dated issuances.