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Ghana Yields Seen Falling From Two-Month High on Verdict

Yields on Ghana’s cedi debt are set to retreat from a two-month high after President John Dramani Mahama’s election win was upheld in a court decision, easing concern of political instability.

In a majority decision, the Accra-based Supreme Court yesterday confirmed Mahama’s December victory, setting aside opposition allegations that vote counting was marred by irregularities. The threat of unrest accelerated the cedi’s decline against the dollar, with the currency falling 8.4 percent from May 1 through yesterday from a 3.6 percent drop in the first four months of 2013.

Yields at a central bank auction of 600 million cedis ($279 million) of five-year notes due to take place next month, the first sale of securities of that duration in 2013, may be 17 percent to 19 percent, said Elvis Darku, head of fixed income at the Ghanaian unit of Nigeria’s Access Bank Plc. Local-currency notes due August 2017 traded at 21.25 percent yesterday. That matched the rate on June 17, which was the highest since August 2012, according to data from Standard Chartered Plc compiled by Bloomberg.

“I would expect bond market indicators to head in the direction of government plans,” Darku said by phone yesterday. The ruling “will stop all uncertainty about the nation and investing here. The government too will be more focused and I expect them to move quickly and tackle the economic issues.”

Widening Deficit

Mahama, 54, is facing the challenge of narrowing a budget deficit that widened to 12.1 percent of gross domestic product last year from 4.3 percent in 2011. The Finance Ministry forecasts a 9 percent gap this year and economic growth of 8 percent compared 7.9 percent in 2012. The court dismissed a a suit lodged by Nana Akufo-Addo, 69, leader of the opposition New Patriotic Party.

The government has introduced as many as four new taxes to boost revenue and cut spending on fuel and utility subsidies to ensure the budget deficit target is not missed this year, Deputy Finance Minister George Ricketts-Hagan said by phone yesterday. Interest payments are falling after $250 million of $1 billion Eurobonds issued in July were exchanged for Ghana dollar debt due 2017, he said. The government plans to reduce the deficit to 6 percent of GDP within three years, he said.

Yields on Ghana’s Eurobonds due August 2023 have risen 33 basis points to 8.33 percent since they began trading on Aug. 1, while average African yields are unchanged this month at 6.79 percent, according to JPMorgan Chase & Co. indexes. Nigeria’s 10-year dollar debt, sold three weeks before Ghana’s, advanced 8 basis points in the period.

Cedi Pressure

Growth has driven demand for imports and added to pressure on the cedi as companies seek dollars to pay for goods. The currency has dropped 12 percent against the dollar this year, Africa’s worst performer after the South African rand and the Namibian dollar, which is linked to the rand. It gained as much as 1.5 percent to 2.1225 per dollar and was unchanged at 2.155 as of 11:15 a.m. in Accra.

With the resolution of the election dispute, the cedi may gain 0.7 percent from current levels by the end of the year, Darku said.

“I expect the markets to stabilize more quickly with Mahama declared winner than if Nana Addo was declared winner,” Collins Appiah, director of asset management at Accra-based NDK Financial Services Ltd., which lends money to small- and medium-sized businesses, said by phone yesterday.

Before the verdict, which could have seen the court order a re-run of the election, buyers preferred “holding dollar-denominated assets compared with their cedi counterparts,” Appiah said.

‘Trending Back’

Yields on debt due May 2016 rose to 21 percent yesterday on the secondary market from 19.24 percent at an auction on May 30. With Mahama’s victory, “I see the yields trending back to their auction levels by December,” Appiah said.

The government is using $100 million of the dollar debt to refinance domestic debt, Ricketts-Hagan said. Ghana’s benchmark 91-day Treasury bill retreated for a sixth weekly auction to 22.77 percent on Aug. 23 from 23.08 percent on July 12, according to data compiled by Bloomberg.

With the court case out of the way, “we expect that any investor confidence that was lost in our markets would be restored and the impact felt favorably on the bonds market,” the deputy finance minister said.

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