The end of a monopoly by Ghana’s state-owned pension fund is poised to boost savings fivefold by 2017, helping revive the nation’s corporate bond market and end a drought in initial public offerings.
The retirement industry, with assets of 1.06 billion cedis ($484 million) in 2012, may jump to 5.5 billion cedis over the next four years, Ekow Fynn-Aikins, regulations officer at the National Pensions Regulatory Authority in Accra, said in an interview. While the Ghana Stock Exchange’s Composite Index has climbed 68 percent this year, the best performance in Africa, the bourse’s last IPO was more than two years ago. No company has sold bonds on the domestic market since 2008.
“There’s a perceived demand out there for new issues,” Sam Mensah, chairman of the Ghana Stock Exchange and an adviser at the Finance Ministry, said in an interview. “It’s still early days and we’ll have to wait for the pension industry to grow to know exactly what their impact can be.”
Since Ghana implemented a 2010 law in December compelling employers to commit more toward workers’ pensions and set aside contributions for private money managers for the first time, volumes on the bourse surged 75 percent as of June, according to data compiled by Bloomberg. The number of pension managers increased to 45 from zero when the authority began registering last year. An Accra-based home-mortgage lender, the International Finance Corp. and a state-owned power utility said they will consider selling debt.
“We’re likely to see a very active bond market with pension-fund managers competing,” said Elvis Darku, the head of fixed-income trading at the Accra-based unit of Access Bank Plc. “Their entry may encourage issuance of corporate bonds to tap the funds.”
Managers can invest as much as 30 percent of their funds in company debt, 75 percent in government securities and 10 percent in equities, according to the regulator. Yields on benchmark 91-day Treasury bills retreated 250 basis points, or 2.5 percentage points, from this year’s high of 23.12 percent on Feb. 22 to 20.6 percent on Oct. 4, the lowest since June 2012.
Of the 35 stocks on Ghana’s bourse, 20 rallied this year and three declined. The gains were led by a 400 percent increase in the local unit of PZ Cussons Plc and a 285 percent climb in Accra-based insurance company Enterprise Group Ltd. The regulator doesn’t keep track of how much money is put in different types of assets, Fynn-Aikins said.
“Every fund manager is keen on grabbing the best stocks,” John Ofosu Awuku, a portfolio manager at NDK Asset Management Ltd. in Accra, who put about 8 percent of his 12 million cedis under management into equities, said by phone on Oct. 3. “From next year we suspect that there will be share sales from companies motivated by the pension funds.”
The limited places for investment is curbing the stock market’s growth potential, according to Ecobank Development Corp., the Accra brokerage unit of Lome-based Ecobank Transnational Inc. Average daily trading volume on the Ghanaian bourse was 763,000 over the past six months, compared with 30 million on the FTSE NSE Kenya 25 Index and 211 million on the Johannesburg Stock Exchange’s all-share measure, according to data compiled by Bloomberg.
The Ghanaian bourse has a price-to-earnings ratio of 22, while Nigeria is at 13 and South Africa’s measure is at 20. The MSCI Frontier Markets Index is at 12. Ghana’s composite index added 1.3 percent to 2,045.29 by the close in Accra.
“All of us are chasing the same 10 stocks that actually trade,” Sarah Arhin, head of asset management at EDC, said by phone. “We expect a lot more profit taking to set in moving closer to the end of the year.”
The last IPO in Ghana was the local unit of Tullow Oil Plc, which operates the country’s Jubilee oil field, in July 2011. The government plans to list part of its shares in alcohol-drinks maker Gihoc Distilleries Ltd., state-owned Ghana News Agency reported in March. Gihoc, technology company Rlg Communications Ltd. and Kosmos Energy Ltd., which has a stake in Jubilee, are also being pursued by the bourse to list, Managing Director Kofi Yamoah said in April. Yamoah couldn’t immediately comment yesterday as he was going into a meeting.
“Pension funds are looking for shares to buy so those who want to sell are able to trade more quickly,” Mohammed Kamara, general manager at Accra-based Prudential Securities Ltd. who manages more than 4 million cedis of clients’ pension funds, said by phone on Sept. 16.
The new retirement savings plan boosts the contribution amount to 18.5 percent from 17.5 percent and cuts the share of the state’s Social Security and National Insurance Trust fund to 13.5 percent. Employees can also opt to increase their contribution. Fund managers can also put as much as 5 percent of investments in mutual funds and 35 percent in money markets.
Stephen Yeboah, chief actuary with the state-owned pension-fund manager, said he couldn’t immediately comment when reached by phone Oct. 4. He didn’t answer two calls made to his mobile phone yesterday.
The Electricity Co. of Ghana is planning to hold talks with the Finance Ministry about selling its first corporate bonds to “fill in the gap” between increases in power rates, which are set by the government, Finance Director Joseph Krause said by phone yesterday. The term and amount hasn’t been decided, he said.
The Volta River Authority, another state-owned power utility, is being urged along with the ECG to sell bonds, Adu Anane Antwi, director general of the Accra-based Securities and Exchange Commission, said in an interview. VRA Chief Executive Officer Kweku Awotwi wasn’t immediately available to comment yesterday, according to a person who answered a call made to his mobile phone and didn’t give her name.
The IFC obtained approval to sell debt in cedis, it said Aug. 20. Whichever company sells bonds, it will be the lone corporate issue in the country and the first since the mortgage lender HFC Bank Ghana Ltd. sold four-year debt in 2008. Ghana Home Loans is planning to sell the country’s first mortgage-backed bond next year, Chief Operating Officer Kojo Addo-Kufuor said in an interview on July 24.
“We’re talking to real-estate developers to issue bonds and fund managers to set up mutual funds that mobilize funds for investment in real estate,” the SEC’s Antwi said.