The Ministry of Finance has debunked reports that its issuance of the maiden 20-year bond has come unstuck and is undersubscribed.
According to a release copied to B&FT and outlining government Debt Strategy and Issuance of Maiden 20-Year Bond and Other Matters Relating to Bloomberg reportage, the ministry explained that given the current market conditions and limited appetite for longer-dated bonds, the debut issue’s size was unlikely to be of a benchmark size – and that was the reason it was structured as a shelf-offering, so additional issuances could be done over time to reach the targetted GH¢450million benchmark level.
As such, contrary to the articles published by Bloomberg, “this was not a failed or undersubscribed offering, but a fairly-priced offering that has established another data point along our yield curve”.
“The Ministry of Finance issued a debut 20-year domestic bond to investors with a settlement date of 26th August, 2019. This was in accordance with the Issuance calendar, which is published on a quarterly basis at the beginning of each quarter. In the Issuance Calendar for the 3rd Quarter, we included the possibility of issuing a 20-year bond for the first time, subject to market conditions, and indicated a target size of up to GH¢450million.
“The primary reason for the issuance of a debut 20-year bond was to extend the tenor, yield curve, and establish a benchmark. This also helps to deepen the domestic market and improve liquidity through the issuance of benchmark size bonds that will be sizeable enough for investors to trade in and out of – thereby creating liquidity, better price discovery or pricing and deepening the secondary market.
“It was in line with this strategy that the government of Ghana, in consultation with the Joint Book Runners (JBRs) and investors, decided to issue a 20-year bond through a shelf-offering to extend the tenor and yield curve from 15 years to 20 years.
“This strategy is consistent with our 2019 Annual Borrowing Plan and 2019 Medium Term Debt Strategy of issuing longer-dated bonds beyond 10 years to extend the yield curve further. It is also consistent with our efforts to deepen the domestic debt market by building benchmark securities through tap-ins, rather than excessive new issuances. It is also part of our strategy to re-profile the domestic debt portfolio by reducing the percentage of shorter-dated instruments of 91 and 182-day bills, which dominate our bond market and increases rollover risks.”
Furthermore, the release noted that the ministry has been successful in sticking to its strategy of elongating Ghana’s yield curve with the issuance of the highest tenor bond (20-year bond) on the domestic market. Prior to this, the longest dated bonds on the domestic market was the 15-year bond.
Ghana’s issuance of a 20-year bond is in line with its debt strategy not to borrow at any cost. As a country, “We insist on being fiscally prudent and borrowing at the lowest rates. It is clear that there will always be a trade-off between pricing and interest rates with the spill-over effect, demonstrated in subscription levels by investors. Thus, if the interest rates are perceived to be low by investors, meaning tighter pricing in financial parlance, the bond will most likely be undersubscribed and vice versa,” the release added.
The Finance Ministry has subsequently assured all investors and the public that its debt strategy is well anchored on debt sustainability, improved real rates and a stable macroeconomic environment.