Memorandum On $750m Eurobond

MEMORANDUM TO CABINET ON UTILIZATION OF PROCEEDS FROM GHANA’S EUROBOND TRANSACTION PRESENTED BY DR. KWABENA DUFFUOR, MINISTER FOR FINANCE AND ECONOMIC PLANNING



The New Crusading GUIDE has decided to publish a letter by Ghana’s Finance Minister to the World Bank on June 15, 2009 and a Memo to Cabinet on August 4, 2009, in order to throw more light on the hullabaloo surrounding the utilization of the $750m Eurobond facility sourced by the former New Patriotic Party government in 2007.
We hope this and subsequent exposures on the $750m Eurobond saga would set the records straight.
Please stay tuned for more…
*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$750 million in international capital markets during 2007. The Ministry of Finance and 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 U.K.) 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$750 million 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$750 million 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$750 million
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 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

*Disbursements 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 issue shares of Anglogold 55,585,895.43
VRA Crude Purchase 41,784,261.78
Transfer to TCMA Account 2,452,129.72
MOFEB 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

Item Planned Allocation Variance
Allocation
Energy 456.81 508.28 (51.47)
Roads 198.61 92.27 106.34
Railways 89.38 13.90 75.48
Issues 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


EXCERPTS OF KWABENA DUFFUOR’S JUNE 15, 2009 LETTER TO WORLD BANK
Non concessional borrowing in 2007 was mostly used to raise energy capacity and that of 2008 is being assessed. Out of the US$750 million borrowed in 2007 in the form of Eurobonds, US$595 million had been disbursed by January 2009.
The proceeds were allocated primarily to support public investments in the energy sector according to the following distribution: US$286 million for investments by the Volta River Authority (VRA); US$134 million for investment by the Electricity Company of Ghana (ECG); US$54 million for the investment in the Bui Dam; US$31 million for the Government’s equity investment in the West Africa Gas Pipeline (WAGP); and US$90 million for public investments in road infrastructure.
The information provided by the Government of Ghana confirms therefore that the proceeds from the Eurobonds were used for productive investments, primarily in electricity generation and distribution – two areas that had been identified in the 2007 Country Economic Management (CEM) as warranting additional investments to sustain economic growth.

Source: International Development Association Program Document For The Economic Governance And Poverty Reduction Credit In The Amount Of SDR193.8 Million (US$300 Million Equivalent) To The Republic Of Ghana: June 15, 2009)