How NPP Squandered The $750 Million Eurobond

By Aaron Okyere

One of the biggest mysteries that the Daily Post is trying to unravel is why the NDC government does not seem to want to hold officials of the erstwhile NPP government accountable for squandering the $750 million Eurobond they accessed in 2007.

The Daily Post was surprised to hear John Boadu, former National Youth Organiser of the NPP say he has in his possession a document prepared and signed by the Finance Minister, Kwabena Dufuor and sent to the World Bank declaring that the Eurobond was well spent by the NPP government.

The Daily Post was really bewildered by this claim because it had in its possession a memorandum sent to cabinet on 4th August, 2009, by Finance Minister, Kwabena Dufuor explaining what the $750 million Eurobond was budgeted for but how Kufuor’s Economic Planning team actually spent it.
The document also indicates that the sum of $ 6,836,438.22 was spent by the Kufuor government on November 2007 salaries. Below is the full text of the document presented to cabinet on August 4, 2009.


Memorandum to Cabinet on Utilization of Proceeds from Ghana’s Eurobond Transaction
Presented by Dr. Kwabena Duffuor/Minister for finance and economic planning
Information Memorandum on the Utilization of Proceeds from Ghana’s Eurobond Transaction
Action Required
Colleagues are respectfully invited to take note of the summary of the utilization of proceeds from Ghana’s 2007 sovereign bond transaction.
Background
At its meeting on Tuesday 6th February 2007, Cabinet approved the issue of a sovereign bond of up to US$750million in international capital markets during 2007. The Ministry of Finance Economic Planning and the Bank of Ghana, through the Capital Markets Committee, undertook preparatory work towards the issue of the bond. The preparatory work included the appointment of key advisors and service providers (lead and co-managers, international and local counsel, fiscal agent,) due diligence, preparation and filing of prospectus with regulatory authorities (Listing Authority of the UK) and a road show.
On July 30, 2007, Parliament approved by resolution a request by the government to borrow from the international capital market an amount up to US$750million at the prevailing interest rate on the date of the transaction and a maturity period of five to ten years to support the implementation of the medium term investment plan.
On September 27th 2007, the Republic of Ghana issued its debut US$750million 10-year bond. A summary of the issue details is presented below:
Issuer: The Republic Of Ghana
Ratings: B+ stable (S&P), B+ positive (Fitch)
Format: Reg S/144A
Amount: US$750million
Coupon: 8.50%
Issue Price: 100%
Pricing: Mid-swaps + 325 bps
Maturity: October 4, 2017
Settlement: October 4, 2007
Benchmark reference: UST 4.75% Aug. 2017
Spread to benchmark: 387 bps
Listing: London Stock Exchange
Joint Bookrunners: CITI, UBS
Co-Managers: EDC Bank, Databank, New World (Ghana)

Planned Utilization of Sovereign Bond Proceeds
The planned utilization of the sovereign bond was as follows:

Sector Planned Allocation (US$ millions)
Energy 456.8
Roads 198.6
Railways 89.4
Issue Costs 5.2
Total 750.0

Actual Utilization of Sovereign Bond Proceeds
As at 3 August 2009, a total amount of US$746.6 million had been disbursed.
A summary of the disbursements is as follows:
Description Amount (US$ millions)
Energy 508.28
Roads 92.27
Railways 13.90
Others* 126.95
Bank 5.20
Total 746.60

*Disbursement Unrelated To Energy, Roads And Railways
Itemized below are the disbursements classified as “others”:
Interest on 1st Coupon to Citi Bank 14,000,000.00
Purchase of 2225426 right issues shares of Anglogold 55,585,895.43
VRA Crude Purchase 41,784,261.78
Transfer to TCMA Account 2,452,129.72
MOFEP Establishment of International Financial Services Centre 432,301.00
Transaction Advisory Fees IFO NTHC/Databank for sale of Westel 982,000.00
Ghana Telecom Bond Solicitation by Standard Bank 1,685,209.67
Borrowing to support November 2007 Salaries 6,836,438.22
SAS Transaction Fees for Golden Jubilee Savings Bond 174,033.85
Exchange Rate Difference 3,017,730.33
Total 126,950,000.00

From a comparison of planned versus actual allocations the following observations can be made:
• Energy allocation was overspent
• Very little of the railway allocation was used
Planned

Item Allocation Allocation Variance
Energy 456.81 508.28 (51.47)
Roads 198.61 92.27 106.34
Railways 89.38 13.90 75.48
Issue Costs 5.20 5.20 -
Others 126.95 (126.95)
750.00 746.60 3.40

The current Eurobond balance is US$3.4 million.
Colleagues are kindly requested to take note of the above.
Dr. Kwabena Duffuor
Minister of Finance and Economic Planning
Dated: 4 August 2009

From the text of the Finance Minister’s presentation, it is clear that the NPP government’s Economic Team squandered the $750 million. Today, in spite of the fact that Ghanaians are paying a whopping $38.8 million every six month as interest on the money and will continue to do so until 2017 when the principal ( $750 million) will also have to be paid, there is not even a metre stretch of road or railway that those who managed the Eurobond can point to as having been what Ghana benefited from the Eurobonds
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