Ghana to test international debt waters in July

Those waiting to get their hands on Africa's first ever bond issue are going to have to sweat it out until at least the next month and a half. "We"re moving seriously towards July” Finance Minister Kwadwo Baah-Wiredu has told The Statesman.

Those comments echo a report last week out of Reuters where Mr Baah-Wiredu told the news agency that Ghana won’t rush the up to $750-million offering.  “We’re taking our time to go through everything in May and June so that by July the lead managers and others can then go on to the market.”
Investment banking giants UBS and Citigroup are jointly leading the offering which will be worth between half a billion and three-quarters of a billion dollars.

The Ghanaian bond is likely to be the first of several from Sub-Saharan Africa. Nigeria is also planning to come to the market - with many insiders expecting the Nigerians will issue their debt by the end of the year.

Ghana plans to use its first foray into international debt markets to help raise badly needed capital to improve the nation’s infrastructure. With the Finance Minister telling Reuters the proceeds would likely be invested in the energy and telecommunications sectors. Baah-Wiredu confirmed to The Statesman the funds will “definitely be used on infrastructure”.

However, with inflation on the rise due to the energy crisis there has been some concern over whether the time is right for Ghana to launch the bond.
Last September the International Monetary Fund, and the World Bank cut Ghana’s debt by two-thirds to $2.1-billion. The move was made possible under the Multilateral Debt Relief Initiative.

Some financial observers both in Ghana and abroad are  worried that the rising inflation scenario could make it difficult for the government to afford to service the bond. They worry Ghana could end up looking irresponsible to the international community by re-establishing a heavy debt load less than a year after the international relief.

Still many market analysts feel Ghana should have little trouble finding buyers for the bond, especially as the issuance is in US dollars.
Stuart Culverhouse, chief economist at Exotix, an emerging markets brokerage in London told Reuters “Under the current favourable conditions, it will be very well received and most likely highly oversubscribed”.

The debate over whether and how African nations should borrow money has been a key topic of discussion at this week’s meeting of the African Development Bank. University of Ghana,. Legon professor Joseph Songsore says “aid is not aid, aid is bondage” summing up the feelings of many in Africa who feel international lending organizations have failed to meet the needs of the continent.

“Nobody is near the .07-percent mark” says Prof Songsore – referring to the portion of Gross Domestic Product that the developed world has pledged to provide to the developing world as aid.

With the developed world unwilling, or unable to fulfill its promises many in Africa are turning towards the equity markets, willing to brave the risk of taking on too much debt, and the concern that poorly managed debt issuances could cause African nations borrow money on less than favourable terms.

Against that backdrop, Mr Baah-Wiredu believes raising big sums in the bond market is the only way Ghana can finance its extensive infrastructure needs. The Minister questioned the use of raising smaller sums saying that piecemeal financing won’t solve the nation’s needs.

“If you get $2 million, what can you use it to do? Or even $5 million? he told reporters last week. “So if you want to fix the telecoms sector, you need to make sure you get a blend of grants, concessionary loans and then commercial loans to fix the issue.”
Come July the stage will likely be set for Ghana to test the world’s appetite to provide funding for the last part of that recipe.

Link to The Statesman : Business : Ghana to test international debt waters in July