Ghana to Sell $1 Billion Eurobond Despite Concern Over Costs

  • Minister of Finance says sale may happen as soon as July
  • Government had told investors it was considering loan instead

Ghana will sell $1 billion Eurobonds this year despite concerns about rising borrowing costs.

The West African nation will offer the debt in either July or September, Minister of Finance Seth Terkper said in an interview in the capital, Accra. The country hired three transaction advisers and remains open to other funding options, Terkper said. A failure to issue a Eurobond would leave a $750 million hole in the 2016 budget with an additional $250 million needed to repay debt, Bloomberg Intelligence analyst Mark Bohlund said in a May 23 note.

Just a week ago, the government had begun considering turning to banks for a private loan instead of its usual Eurobond because of the rising cost of issuing debt abroad, according to a Ministry of Finance presentation. The world’s second-biggest cocoa producer agreed to an almost $1 billion International Monetary Fund program in April 2015 as cocoa output declined and prices of commodities including gold fell.

“Ghana’s prospects are very bright,” Terkper said. “We had a non-deal roadshow and we’re waiting for a more favorable window.”

Yields on Ghana’s $1 billion of Eurobonds due August 2023 rose as much as 4 basis points to 11.14 percent from as low as 11.05 percent before the announcement. They traded at 11.09 percent at 2:55 p.m.

Ghana’s “borrowing strategy appears to be driven by an expectation that the IMF’s endorsement of its fiscal consolidation measures to date will be a significant factor in rallying market sentiment,” Manji Cheto, an analyst at Teneo Intelligence in London, said by e-mail. “Investors will be watching with some concern the ballooning debt levels in the West African country.”

Standard Chartered PLC, Citigroup Inc. and Bank of America Corp. will advise Ghana on the sale, Terkper said.

Utility Debt

The country will sell $2 billion in bonds by the end of the year to consolidate the debt of four state utilities, Thomas Akabzaa, chief director of the Petroleum Ministry, said during an interview at a conference in Cape Town.

“We are in negotiations with a number of banks,” Akabzaa said. The debt “will be financed through a 10 percent tax on electricity tariffs and a surcharge on petroleum products,” he said.

The bond’s proceeds will clear $1.5 billion of debt run up over 20 years by utilities including the Volta River Authority, Ghana Grid Co. and some power distribution units, Akabzaa said.

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