Five local financial institutions acting as co-managers have successfully supported the Government of Ghana to raise US$3.025billion in the Eurobond market.
The transaction, which was oversubscribed included a novel zero-coupon bond, the first of its kind by an emerging markets issuer. The contribution of the local institutions towards the success of this year’s transaction is a clear indication of the country’s banking sector growth and the government’s mission to build the capacity of local institutions.
The local co-managers of the transaction were Fidelity Bank Ghana Limited, CalBank PLC, Databank Brokerage Limited, IC Securities (Ghana) Limited and Temple Investments Limited.
Their contribution included working with the joint lead managers to develop the investor presentation, to fashion the liability management strategy and to coordinate the logistics for the first ever virtual roadshow out of Accra as well as aggregating significant domestic demand for all tranches of the Eurobond.
The demand from the local co-managers came mainly from domestic Ghanaian investors, which also provided access for Ghanaian investors on the international capital markets.
The novelty associated with this year’s US$3.025billion Eurobond is the fact that it represents the largest Eurobond issuance by the republic of Ghana. It also marks the first time a zero-coupon bond denominated in USD had been issued by an emerging market nation for new money or outside of a restructuring. Importantly, it also marks the first time four tranches have been issued by a Sub-Saharan African country.
Historically, local co-managers have contributed relatively lower amounts to the total order book; however, over the last few years there has been improvement in the local co-managers contribution to the total order book with each successive issuance.
The successful collaboration between the local co-managers and the joint lead managers resulted in the heavy oversubscription by investors and the government securing favourable interest rates for the four Eurobonds that were issued despite the impact of COVID-19 and energy/financial sector debts on the 2020 fiscal deficit.
Commenting on the Eurobond, the Finance Minister, Ken Ofori-Atta stated that: “For the first time in Africa we have seen local managers drive significant local market participation in fund raising in a global Eurobond.
“Close to 50% of the zero coupon bond was taken up by the local market through the efforts of the local co-managers and currently Ghana is the only country in Sub Saharan Africa that has logistics for global issuances managed by local entities,” the Finance Minister further disclosed.
He also noted that while, for this issuance, local Co-Managers supported the joint lead managers in the various streams of work— investor presentation, development of the liability management strategy and the logistics for the virtual roadshow—there is the desire for local institutions to take on other lead roles in a bid to localize a significant portion of the work for global and local fund raising efforts.
What will the 2021 Eurobond proceeds be used for?
Firstly, the government will use the 2021 Eurobond proceeds to finance US$ 1.5 billion of the 2021 budget deficit. Due to the pandemic-related spending since 2020 and the need for fiscal support to strengthen Ghana’s economic recovery in 2021, the budget financing requirement remains elevated. Hence, the use of US$1.5 billion to partly bridge the financing gap for the year.
Secondly, the government will use the funds to conduct liability management for both domestic bonds and outstanding Eurobonds. Liability management involves the use of relatively cheaper and longer-dated funds to pay off more expensive and near-term maturing debts, with the goal of reducing the average cost of debt and creating fiscal space. The 2021 Eurobond seeks to achieve these liability management objectives through the buyback some domestic bonds.
About Ghana’s 2021 Eurobond Transaction
In March 2021, Ghana returned to the international debt capital markets as the first Sub-Saharan African sovereign to issue a bond in USD since the onset of the COVID-19 pandemic. While Eurobonds are not new to the market, the issuance of a four-year Zero-Coupon Tranche was an innovative market-oriented solution to address post-COVID-19 challenges and improve the cash flow required for debt servicing.
The issuance achieved a record size of US$3.025 billion. The country’s consistent ability to raise multi-billion-dollar financing and this pioneering use of a four-Year Zero tranche is a testament to investors’ confidence in Ghana’s strong growth prospects in the medium term.