Ghana prepares to issue US$1 billion Eurobond in July

Ghana will in July this year issue a Eurobond worth up to US$1 billion to refinance debt and fund infrastructure projects in the country.

Economy Times has learnt that officials of the Ministry of Finance and Economic Planning, as well as the Central Bank, would in June this year embark on a road show to that effect.

Already most of the foreign banks including Barclays Bank have started bidding to become the lead arrangers for this second Eurobond.

The Central Bank is very optimistic that the bonds would be heavily oversubscribed.

"We are looking at the best conditions including costs, and we will not do it until we're convinced it is the right time," Kwesi Amissah-Arthur told Reuters last week.

The West African country has drawn increased attention from investors since it began oil production in 2010. An expanding budget deficit has tarnished its reputation for fiscal stability.

But its economy is growing rapidly and, with top-rated sovereign debt paying returns of well below 2 percent over 10 years, analysts in London said they expected a Ghanaian sale to go well.

"The deal should be well received partly because they have said the cash will help with the amortization of debt," said Stuart Culverhouse, head of research at Exotix, a frontier markets brokerage.

"If you look at similar bonds from Nigeria and Zambia, they came in 5-6 percent, and Ghana should be able to get a similar rate."

Rwanda placed 10-year dollar debt at a yield of 6.875 percent earlier this month, and Nigeria, which sold a $500m bond in 2011, plans a $1 billion Eurobond later this year to help finance power and gas reforms.

Zambia launched its debut dollar bond to much fanfare last year.

Rated a few notches below investment grade, Ghana successfully issued a $750 million 10-year Eurobond in 2007, which yielded 4.87 percent on Wednesday compared with a launch yield of 8.5 pct, according to Reuters data.

The government in Accra had yet to appoint advisors for the new transaction, said Finance Minister Seth Terkper, and the proposed bond is subject to approval by parliament.

"We hope to put it before the House as soon as they resume (after the current recess)," Terkper told Reuters.

CALCULATED DECISION

In March, Terkper unveiled plans to trim the fiscal deficit to 9 percent of gross domestic product this year from 12.1 percent in 2012 while cranking up expenditure by 20 percent.

That disappointed economists who were expecting Ghana to reaffirm a commitment to a deficit of 6 percent of GDP - a target it set and then missed by some distance in 2012.

Credit agency Fitch downgraded the stable outlook on its B+ rating to negative in February due to the deteriorating public finances.

But a London-based fund manager said Ghana should still be able to cut the cost of servicing the 2007 bond significantly.

"They have made a calculated decision that they could borrow 200-300 basis points cheaper than they are paying. This is not unreasonable," said Stephen Charangwa, head of fixed income at fund manager Silk Invest.

"They are paying upwards of 17 percent in the local market and need to turn to cheaper sources," he said, noting Ghana had significantly increased local debt issuance as it attempts to close its funding gap.

The country, which is rated B1 by Moody's and B with a stable outlook by Standard & Poor's, saw its public debt rise by more than a fifth last year to $18.8 billion.

The director of the International Monetary Fund's African Department, Antoinette Sayeh, said on Tuesday, there were advantages in the refinancing of debt by African governments.

"There is access to more financing at relatively low rates for sub-Saharan African governments at this point," she told Reuters. "Some of those resources are also being used to finance infrastructure (and there is) also a benefit there."

The Fund voiced concern in a recent report that sovereign debt issuance in the Eurobond market was not the best way of financing infrastructure projects, but gave no details.