In making available long-term funding to the private sector, the Ghana Stock Exchange (GSE) is pushing for the listing of some 36 new corporate bonds on the Ghana Fixed Income Market (GFIM) in the next five years – thus, at least six new issuers per year.
The corporate bond market is nascent – with a very limited number and type of issuers of 11 listed bonds, with the total amount outstanding being GH¢11.93billion as of January 2022, which is small compared to the outstanding government of Ghana bonds at GH¢150billion.
This limited number of corporate bonds, coupled with the small size of the amount raised, provides little scope for secondary trading. Nonetheless, this market is projected to grow significantly in the coming years.
Addressing the media during the GSE MD’s breakfast meeting, Deputy Managing Director Abena Amoah indicated: “For the corporate bonds, we are looking at five to six new issuers every year for the next five years. But there are few things that must be in place for a corporate debt market to grow.
“This market was set up in 2015 and is still relatively in its infant stages; and like many bond markets that are developing, it starts with government securities. We currently have about 11 issuers on the debt market (which have raised about GH¢12.61billion in debt, out a shelf registration of GH¢17.67billion).”
Corporate bonds are currently dominated by non-bank financial institutions – with maturities ranging from 3 to 10 years – and a government-sponsored special purpose vehicle (SPV), ESLA Plc. In the case of ESLA Plc there has been about GH¢8.7billion issued, representing 73 percent of the outstanding issuance as of January 2022.
Largely, among the reasons for lack of issuer interest in corporate bonds have been the unwillingness of private issuers to meet the high demands attached to listing – such as transparency and transaction costs, as well as limited flexibility in public debt markets relative to bank loans.
However, the Deputy MD mentioned that the key challenge of the private sector is access to long-term and affordable capital. “Many of the private sectors have maxed-out of their bank loans – which are expensive and short-term, and do not afford them to do the long-term projects such as the acquisition of new equipment among others.”
“Today, we have the private pension funds which have about GH¢10billion looking for investment opportunities in listed equities or listed corporate bonds. We are working in partnership with our stockbrokers to get those companies ready which have the right governing structure, right business plan, and gain access to this GH¢10billion to create jobs and grow the economy.”
Institutional investors such as pension funds, collective investment schemes and insurance companies are growing but have few investment options in capital market products, since current tradable options are limited to government debt, a few corporate bonds and a few equity listings.
Highlighting some work being done in the corporate debt space, Ms. Amoah said: “There’s some businesses we are working with to see if they can come to the market and investors will give them – instead of working capital – five-year funding through the corporate debt instrument”.