Ghana Scraps Eurobond Sale as Costs Soar on Fiscal Concerns

  • Government sought to raise as much as $1 billion in new bonds
  • Ghana plans to buy up to $100 million of notes in tender

Ghana scrapped plans to sell its fourth Eurobond in as many years, balking at the price investors demanded amid concern that the West African nation may relax its commitment to fiscal targets ahead of parliamentary and presidential elections.

The government will monitor markets and revive the sale “at the optimal time and the right conditions,” the Finance Ministry said in a statement on Thursday after concluding investor meetings in the U.K. and U.S. It also capped a buyback tender for $500 million of 2017 notes at $100 million.

Yields on existing dollar debt soared in recent weeks as the government exceeded its deficit target amid a dispute with the International Monetary Fund over whether the central bank should be allowed to bankroll government spending. Ghana turned to the IMF for assistance last year as a plunge in the cedi and dwindling oil revenues weighed on the economy.

“It’s not an entire surprise,” Nicolas Jaquier, an emerging-markets economist at Standard Life Investments Ltd. in London, said by phone. “The timing of the new issue was a bit puzzling, coming to issue a bond just before some of the pending issues with the IMF were being ironed out. That’s what kept many investors away.”

Yields on Ghana’s $1 billion of bonds due August 2023 dropped 26 basis points to 10.05 percent by 3:48 p.m. in the capital, Accra. The yield climbed as much as 90 basis points to 10.55 percent last week after Finance Minister Seth Terkper said spending will be 3.8 percent higher than projected and that the budget deficit target had been missed. That increased the yield investors expected for the new issue.

“It is 30 percent pricing and 70 percent bad timing,” said Richard Segal, an analyst at Manulife Asset Management, who attended an investor meeting on Monday. “Investors asked more than they were willing to pay.”

Lawmakers passed a new Bank of Ghana law on Wednesday, lowering a cap on how much the central bank can lend to government to 5 percent of the previous year’s revenue from 10 percent, according to minutes of a parliamentary meeting handed to reporters in Accra. The move effectively rejects an IMF suggestion that the central bank should make no advances for government’s spending plans.

Fiscal Deficit

Ghana, which heads into elections in December, agreed to a near-$1 billion program with the IMF in April last year to help rein in the budget deficit and arrest declines in the cedi. The fiscal deficit in the first five months of the year was 2.5 percent of gross domestic product against a target of 2.2 percent, Terkper said last month. The cedi has lost 4.8 percent this year, trading 0.3 percent weaker to 3.9500 per dollar on Thursday.

Ghana’s is faced with “limited fiscal space with high debt burden, low debt sustainability, large gross-borrowing requirements and rollover risk due to tight domestic and external funding conditions,” Moody’s Investors Service, which rates the nation’s debt B3, below investment grade, with negative outlook, said in a note on Thursday. Moody’s forecasts Ghana’s budget shortfall to be 6.1 percent of GDP this year compared with the government’s target of 5 percent. It sees debt to GDP increasing to 70.2 percent by the end of the year from 63 percent currently.

Selling a dollar bond later this year “will be challenging if they do indeed fall off track with the IMF program,” Standard Life Investment’s Jaquier said. “If the IMF gives them a pass, then they might manage to try and issue before the elections.”

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