IFC delays plans to issue cedi bonds

The International Finance Corporation (IFC) has held back plans to float some cedi-denominated bonds on the Ghana Stock Exchange (GSE), citing the high rates of Government of Ghana (GoG) securities on the market as basis for its inaction.

The current rates of the GoG bonds, which average around 25 per cent, means that any corporate bond on the market would have to attract comparatively higher rates and the IFC believe pegging the rates at such levels would automatically lower investor appetite for them.

As a result, the Managing Director of the Ghana Stock Exchange, Mr Kofi S. Yamoah, said the corporation, which is an arm of the World Bank, has decided to hold on to the idea with the hope that the current situation would improve for it to make its debut onto the market.

"One-and-half years ago, IFC talked to us about doing cedi-denominated bond rates. At a certain point in the discussion, the issue came to the fact that they wanted government bench rate to come down a little more so they can now proceed with the issue," Mr Yamoah told the GRAPHIC BUSINESS on May 13.

The delay, he said, was also to enable the corporation to search for institutions that it would invest proceeds of the bonds in should the flotation finally take off.

Mr Yamoah spoke to the paper at the National Economic Forum, where the GSE was invited to make proposals on how the capital market can be made an avenue for raising long-term capital for businesses and the government in particular.

The GSE was among a host of other institutions, including the Securities and Exchange Commission (SEC) invited to share some thoughts on attracting more investors to the local bourse.

The proposals included tax rebates and holidays for corporate institutions wishing to issue bonds on the market. 

Corporate bonds

The MD of the exchange announced in April, last year, that it was in discussions with the IFC, which invests in companies in developing countries, for the corporation to issue some bonds on the local bourse.

Proceeds of the offer, according to the MD, were to be invested in some selected companies in the country.

That discussion has, however, dragged on, due to the rocky nature of the country's macroeconomic indicators.

Such indicators, including the current double digit inflation rates, rising debt to GDP ratio and interest rates, have caused treasury bill (T-bill) rates to rise to a record high of about 23 per cent currently.

The three-year GoG bond, which was issued last month, was also pegged at 25.48 per cent, a rate the Stock Exchange MD and Nana Kofi Agyeman-Gyamfi, a stock market analyst at Merban Stock Brokers, said was discouraging to corporate institutions wishing to issue bonds.

"Under the current circumstance, it would be costly to go beyond the government benchmark." 

"So, naturally, companies that have spoken to us are waiting in the rim for the situation to improve before they come in," he said, adding that other corporate institutions were being deterred by the current economic situation.

Municipal bonds and the way out

The disclosure of IFC's stance on the bond market comes on the back of increased discussions within the government and capital market operatives over the need for the metropolitan, municipal and district assemblies (MMDAs) to issue some bonds and use the proceeds to finance development projects.

Although Mr Yamoah said the call was in the right direction, he said government needed to first define the parameters of such issues before it could come to the market.

"We need to know, for example, whether government would take the risks of guaranteeing. If the MMDAs are to stand alone on their own merits, then they need to put in place the various mechanisms of tiring revenues such that when they borrow for those projects, the revenues from the projects would go directly into servicing the bond," he said.

On what the country need to do to entice corporates into issuing bonds, Nana Agyeman-Gyamfi and Mr Yamoah said the fiscal situation in the country needed to improve.

"The bottom line is that government benchmark rates need to come down and for it to come down; it means that we need to ensure macroeconomic stability. When the macros are really stable, we will see inflation coming down, interest rates coming down and the rest, then it becomes much affordable for companies to go beyond the government rate to borrow on the market," the GSE MD said.