Govt turns to Asia to sell debt

The government is gauging investor appetite for new types of debt – samurai, panda and green bonds – as it tries to broaden the country’s borrowing sources from the traditional western world into the sprawling eastern market.

The attempt to shift from Europe and the Americas to Asia and the Middle East is to help diversify investor base for the country’s debt instruments and insulate the large exposure to European and American investors.

By staging two non-deal roadshows to Singapore, Honk Kong and Japan, the government is also aiming to profit from bearish interest rates in those countries where investors are virtually seeking trusted alternative instruments to their low yield ones.

An economic analyst with the Databank Financial Services, Mr Courage Kwesi Boti, said the move was good and could mark a new beginning in the country’s debt portfolio.

“In going into such markets, you are sourcing cheap capital. The other thing is that there is concentration risk with our current arrangement,” he told the GRAPHIC BUSINESS on April 8.

“Currently, investors that invest in the Government of Ghana (GoG) bonds are normally from Europe and America and they are the same group of people – the FT and other big guys.

“The risk with this is if you lose favour with a big guy like FT, they may repatriate or sell off and that can collapse your foreign market. This is why you need to look for alternatives or look for new investor basket,” he added.

Foray into Asia

Last year, a Minister of Finance-led delegation was in China whipping up investor appetite for debt from Ghana.

Also, in February this year, the ministry concluded two non-deal roadshows in Singapore and Honk Kong where the Minister of Finance, Mr Ken Ofori-Atta, sort to sell Ghana’s economic story, build confidence in investors, gauge their interest and prepare the market for possible bond sales in the coming months.

A similar one is currently ongoing (April 9-14) in Japan with Mr Ofori-Atta as the leader of the team.

The six-day trip will also afford the delegation the opportunity to “hold strategic meetings with portfolio and asset managers” in an attempt to whip up appetite for Ghanaian instruments, a press release from the ministry said.

In an interview prior to departing, Mr Ofori-Atta said his outfit was hopeful the roadshows will translate into a better deal (lower interest rate) for future Eurobonds.

With growing technology closing borders and continuously globalising the world into a ‘village’, the minister said there was no reason why Ghana should “hive off the other half of the globe” and deal with the remaining half.

Beyond seeking to improve trade relations with Asian countries, Mr Ofori-Atta said government’s decision to turn attention to Asian countries meant that it was now aiming to diversify its Eurobond – foreign debt – sources with the hope of securing better deals.

“We have a Samurai bond that we want to begin to have discussions on and also begin to diversify our investor base,” he said.

Dr Said Boakye, an economist with fiscal policy think tank, the Institute for Fiscal Studies (IFS), said government’s posture showed that it was in search for better deals.

“If the attention is being shifted from the western world to the eastern world, then the government perhaps feels that they can get a lower deal.

As to whether they will be able to do that is another thing,” he said in an interview.

Last month, the government got approval to issue a US$2.5 billion Eurobond as part of a broader plan to raise some GH¢11 billion in the second quarter to finance the budget.

Interest rate

Japan, just like other Asian countries, has one of the highest national saving rate of 25 per cent of gross domestic product (GDP). Over there, some trillions of dollars have been locked up in domestic investment instruments that are returning close to one per cent in returns.

By offering such fund owners debt instruments from Ghana, which have averaged 8.8 per cent since the country’s debut into the Eurobond market in 2007, the government could be giving Asian and Middle East investors mouth-watery deals.

This is also timely, given that 10-year USA bonds currently sell around 3.9 per cent. Thus, Ghana’s high risk in the eyes of global investors means that its Eurobonds will sell at a premium (plus six per cent) among American investors.

This should be dire for a country that is struggling to contain a bulging interest payment budget.

In 2018, the government is estimating that debt servicing cost will amount to GH¢14.9 billion – equivalent to 6.2 per cent of GDP, 24 per cent of tax revenue but twice of the year’s capital expenditure budget.