Historic zero-coupon bond issuance signals confidence from investors – Ofori-Atta

The reappointed Finance Minister, Ken Ofori-Atta has said that Ghana’s zero-coupon bond issuance demonstrates a strong signal that investors have confidence in the country.

This comes after Ghana successfully secured US$3 billion from an oversubscribed bond book value of US$6 billion raised from the International Debt Capital Markets.

The zero-coupon dollar bond which is first of its kind comes with four-year maturity, alongside a seven-year, 12-year and 20-year instruments. It would be used to address post-COVID-19 challenges and improve the cash flow required for debt servicing.

Reacting to the bond issuance on the international debt capital market, Ken Ofori-Atta in statement issued by the Ministry of Finance pointed out that the proceeds will go towards domestic liability management as well as support Ghana's budget deficit by funding growth-oriented expenditures.

“This historic bond issuance is a strong signal that investors have confidence in our plan for debt sustainability, economic recovery and growth and that Ghana remains a pillar of stability,” the finance minister said.

“Part of the proceeds shall be used for domestic liability management. For example, using US$400 million of the zero-coupon bond to refinance domestic debt with an average interest rate of 19 percent will net Ghana savings of some US$200 million over the four years,” Mr. Ofori-Atta explained.

“Despite the looming risk of a possible third wave of COVID-19 infections across
Europe, generally more volatile market conditions, and global trade disruptions from the Suez Canal blockage, Ghana saw strong demand for its sovereign bond offering, which peaked at over US$6 billion,” portions of the statement read.

“This bond issuance comes after a series of fixed-income virtual meetings held locally across three (3) days with Investors from the United States, United Kingdom, Europe, Middle East and Asia. The transaction comprised US$525 million 4-Year Zero Coupon, US$1 billion 7-year Weighted Average Life (WAL), US$1 billion 12-year WAL and US$500 million 20-year WAL. The traditional Eurobonds priced at 7.75%, 8.625% and 8.875%, respectively,” it added.

Meanwhile, Ghana contracted the Bank of America Corp., Citigroup Inc., Standard Chartered Plc, Standard Bank Group Ltd. and Rand Merchant Bank Ltd. as lead arrangers to commence investor meetings for the sale of the bond on the interntional debt capital market.

What is a zero-coupon bond and Ghana's role

A zero-coupon bond is a bond that does not make periodic interest payments during the tenor of the bond, but is sold at a discount to its value at maturity.

Ghana is the first Emerging Market Sovereign to add a zero-coupon bullet tranche to its bond financing portfolio.

The move is expected to enable the Government of Ghana to create fiscal space to build the economy back which has ravaged by the coronavirus pandemic.

Read the full statement below: