Government will today issue GHc 503.95 million in 10-year fixed bonds, which have been oversubscribed beyond the original targeted volume as contained in the public debt issuance calendar, by about GHc 203.95 million, at discount rate ranging from 19.3 percent to 19.8 percent.
This follows a successful tendering held on Friday, June 21, 2019, with the securities maturing in 2029. This is according to an announcement made by the Bank of Ghana (BoG) on Friday, June 21, 2019.
Per the debt issuance calendar for June to August, 2019, government targeted to tender an amount of GHc 300 million for the 10-year fixed bonds, scheduled only for June. This forms part of the total issuance of GHc 3,400 million that government intends to raise during the month.
Market experts are of the view that, effectively, the oversubscription indicates a vote of confidence in Ghana’s exchange rate stability going forward and reflects expectations of further interest rate falls by these investors, who are largely foreigners, due to the long term nature of the bond issuance which customarily are largely avoided by their domestic investor counterparts.
Foreign investors incur the exchange rate risk when they invest in cedi denominated bonds and therefore shy away from issuances when they expect significant cedi depreciation that would result in exchange rate losses that would negate their interest rate gains. Also, they invest heavily in bond issues when they expect interest rates to fall and therefore try to lock into current rates before this happens.
The latest oversubscription further indicates that the Ghana Fixed Income Market (GFIM) remains liquid enough for the investors going forward, and this gives the assurance that they can off-load their securities at any point in the future if exchange rates or interest rates move against their current expectations.
Government on Wednesday opened the book-build, after releasing an initial pricing guidance for the 10-year Treasury bond through the Ghana Stock Exchange, on Tuesday, June 18, 2019.
The bonds issued each have a face value of GHc 1, with a minimum subscription of GHc 50,000 and multiples of GHc 1,000 thereafter. The offer was opened to both local and foreign investors.
The 10-year bond was issued through Barclays Bank, Databank, Stanbic Bank, Fidelity Bank and IC Securities acting as book runners for government.
Successful bids were expected be cleared at a single clearing level. However, in the event of oversubscription, there will be a discretionary allocation at the single clearing level.
Government aims to build benchmark bonds through the issuance of the different instruments, including this 10-year bond which has been issued only once this month through the book-building method.
From June to August 2019, government plans of raising a total GHc 10,350 million from the domestic market, representing a 14.46 percentage point’s increase from the amount targeted in the second quarter of GHc 12,100 million.
Of the total gross amount, GHc 9,873.37 million is to rollover maturities and the remaining GHc 476.63 million as fresh issuance to meet government’s financing requirements.
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