Analysts mixed on outcome of undersubscribed energy bond

Professor Peter Quartey

Ghana’s hopes of raising a debt without sovereign guarantee did not yield the expected results, and the outcome has been met with mixed reactions from industry and academia.

A statement from ESLA Plc. – the Special Purpose Vehicle (SPV) established to raise the bond with backing from the Energy Debt Recovery (EDR) Levy flows – noted that the issuance accepted a total of GH¢4.7billion at 19 and 19.5percent for the seven- and 10-year bonds respectively from a total auction of GH¢5.32billion.

Though the seven-year bond was marginally oversubscribed and raised the required amount of GH¢2.4billion, the 10-year bond failed to raise the expected amount and had to be extended by a week.

Despite the extension, the 10-year issuance still fell short by GH¢1.3billion – representing 36.1 percent of the expected GH¢3.6billion. Overall, the deficit represents 21.7 percent of the expected first tranche of GH¢6billion under the overall programme of GH¢10billion.

While some analysts believe that there is no need to raise alarm bells over the hole in the issuance, since further issuances will be undertaken subject to favourable market conditions and adequate levels of the EDR Levy flows, others blame incoherence in the ongoing energy sector reforms as part of the shortfall.

“Subsequent issuances will continue until the total outstanding legacy debts and other obligations due suppliers and other creditors within the energy sector have all been settled. ESLA Plc., the issuer, shall ensure that EDR Levies are monitored with the prospectus. Bondholders will be paid from EDR Levy receipts assigned to ESLA Plc.,” the statement added.

Head of Economics Department at the University of Ghana, Professor Peter Quartey, told the B&FT in an interview that investors are doubtful reforms in the energy sector will guarantee their returns.

“First, we must know how the debt came about. This debt accumulated as a result of ECG not being able to collect its revenue and pay its debts to VRA, and gradually the energy sector debt ballooned. So, have we addressed this fundamental problem—the revenue losses?

“Because if I am going to put my money somewhere, I will be very careful where I put it. I don’t think they [investors] see, clearly, the way forward that these institutions will be able to retrieve the revenue and therefore pay this debt off. And that fundamental problem has to be addressed as we continue to raise this money,” he said.

He added: “It’s a good idea to raise money to clear the debt to free-up money to the banking sector, otherwise the banking sector will also collapse. But let’s concurrently address the fundamental problems in energy sector.

“There are some attempts to reform the energy sector, but investors are not sure about the outcome of these reforms. ECG staff are refusing some of the privatisation measures and investors are unsure about sustainability of the bond. Investors want to see some assurance or prospect of getting their money back.”

But an analyst, who played a role in raising the debt, noted that this issuance is a tremendous achievement for the bond market and economy in general.

“The structure of the facility is such that we can come back anytime to raise more. This is the largest bond ever, and there was so much enthusiasm from investors; and we very much appreciate the efforts of investors,” the source said.

The analyst added that this issuance will tremendously improve the trading of corporate bonds. “It is a tremendous achievement for the bond market. Prior to this, there was only GH¢500million and this is taking it to more than GH¢5billion. Liquidity is affected by the size of instrument, and so if the size is small many people hold to maturity. The issuance alone is a great feat in itself,” the analyst added.

While the IMF has classified the bond under government debt, government on the other hand has used the SPV structure to have the bond excluded from public borrowings.

This development (classifying it under government debt), according to Prof. Quartey, is not supported by government because, “Already, the debt-to-GDP was over 70 percent and they managed to bring it down slightly. So, it would not look good on their books if they added it to their debt stock; that is why they want to offload this responsibility to the energy sector”.

By Bernard Yaw Ashiadey and Obed Attah Yeboah l l Ghana

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