Ghana Seeks Third Eurobond Approval as Power Fund Planned

Ghana’s Finance Ministry will seek approval from lawmakers to sell the country’s third Eurobond and start a fund for infrastructure including power and transportation in West Africa’s second-biggest economy.

The plan to sell debt, to be presented to the Accra-based Parliament before the end the year, will allow the ministry to sell dollar bonds when market conditions are right, Deputy Finance Minister George Ricketts-Hagan said by phone on Nov. 22. Ghana will seek at least $1 billion in bonds to be used for roads, energy, railways, and ports, Ricketts-Hagan said. No time frame for the sale has been set, he said.

“We need to raise our infrastructure to match our low middle-income status,” Ricketts-Hagan said. “What we want to do now is to try and get approval early so that whenever we think we need to go to the market and when we get the right window, we do so.”

Ghana’s slow approval process delayed the issuance of $1 billion of Eurobonds by two months, boosting yields on the debt to 7.875 percent when it could’ve paid 5 percent to 7 percent, according to a Finance Ministry document last week. Cabinet ministers gave approval for the July sale on April 2, while parliamentarians assented June 26, a week after Federal Reserve Chairman Ben S. Bernanke said the U.S. may this year taper stimulus that bolstered emerging-market assets.

Yields on African sovereign debt climbed 109 basis points, or 1.09 percentage point, between April and July, according to JPMorgan Chase & Co. indexes. Rwanda sold debt at 6.625 percent in May and Zambia issued notes in September 2012 at 5.375 percent. Yields on Ghana’s debt due July 2023 fell five basis points to 8.21 percent by 12:26 p.m. in Accra.

Public Procurement

Borrowing costs were “slightly more expensive than if we had gone in a little bit earlier,” Ricketts-Hagan said. “We couldn’t go in early because if you haven’t got an approval from Parliament, you can’t go and raise a Eurobond.”

In the ministry’s document, it said a window for lower rates was missed “primarily because of our demanding internal processes,” including public procurement rules for choosing an adviser and parliamentary approval.

Ghana will set up a Capital Markets Committee to advise on debt sales and create an infrastructure fund next year, Ricketts-Hagan said. The fund will operate like a company with the ability to borrow on its own or work with private investors for infrastructure projects that can recoup the money, he said. Seed capital for the fund will be taken from the value-added tax, which was increased to 15 percent from 12.5 percent this month, he said.

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