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Business News of Thursday, 26 October 2017


Government to pay 17-19% interest on energy bond

Government may not be paying anything less than 17 percent in interest for the energy bond.

At least this is the indication from managers of the bond following the announcement of their estimated interest rate for the energy bond.

Lead managers of the bond, told Citi Business News the target is also largely due to developments and investor appetite thus far.

The 6 billion cedi bond is being auctioned in two bids; a 7-year bid to raise 2.4 billion cedis, while the 10-year bid is expected to raise 3.6 billion cedis.

Speaking on Business Today, the Head of Financial Markets Sales at Standard Chartered Bank, Jojo Bannerman however indicated that the current figures may be subject to change after final pricing.

“For the seven-year we are looking at the range from between 17.7-19%; and for the ten-year bids, we are looking at between 17.8 – 19%. This is just a range that is indicative once the orders and the bids come through, we will then engage the sponsor and the issuer to then decide on what the final cut off rate should be,” he told host, Vivian Kai Lokko.

The comment comes days after Citi Business News had projected about 19 percent rate for the bond considering the current 18 percent being paid on the latest 10-year domestic bond.

Economists predict interest rate

Some analysts have noted that this being the first time a bond of such nature is being issued, some factors that will influence the rate for the energy bond include; Ghana’s program with the International Monetary Fund (IMF), macroeconomic indicators such as cedi depreciation and inflation as well as the tax policies on investment gains.

Economist and Lecturer at the University of Ghana Business School, Dr. Lord Mensah has predicted a minimum of 20%.

He explained his reasons for the prediction as, “If you look at this bond, it is going to a specific sector and how the sector has performed over the years will determine the pricing. In addition, investors will be looking at the interest rate dynamics of the country; if you consider the NPP government, it has a tendency to bring down interest rates so if investors are going to commit for some number of years for a particular bond, definitely it must have to make projections for such interest rates.”

Meanwhile, a Research Fellow at the Institute of Fiscal Studies, Adu Owusu Sarkodie is anticipating a strong negotiation by government’s representatives to push the rate down marginally from the 18 percent region.

“Ghana is still part of the IMF program since 2015 and that gives the country some credibility. Also, inflation will be a factor to be considered and any creditor who is going to lend you money at an interest rate lower than the inflation rate is going to lose. Currently, inflation is estimated at 12 percent. As a result, we are not expecting that the rate goes below that figure.”

Bonds’ interest rates

Checks by Citi Business News indicate that for the 10 and 5-year domestic bonds issued in April this year, government will repay at an interest rate of 18.75 percent.

Also for the last three Eurobonds issued by Ghana, the country is expected to pay interest rates between 8 and 10.75 percent.