‘Moody’s Rating Influenced Coupon Rates ‘…for US$3billion Eurobond’

 

The government’s successful issuance of a US$3 billion Eurobond in three installments has been partly attributed to the recent improvement in Ghana’s ratings from a stable outlook to positive by international rating agency, Moody’s.

 

Moody’s based its rating on what it calls rising confidence in Ghana’s institutions which are expected to lead to stability in revenue and expenditure in the medium term.

 

The three-tranche bond was sold with 7-year, 14-year, and 41-year maturities.

 

The government accepted US$1.25 billion for the 7-year-bond at a coupon rate of 6.375 per cent.

 

Also, the government was successful in securing US$1 billion with a maturity period of 14 years at a rate of 7.75 per cent.

 

The last of the three bonds issued was a 41-year bond, which happens to be the longest dated bond issued by an African country. The government accepted to borrow US$750 million at a rate of 8.75 per cent for the longest dated bond which matures in 2061.

 

Although the government set out to borrow US$3 billion in its eighth Eurobond appearance, it received offers to the tune US$15 billion – reflecting investors’ appetite for Ghana’s bond

 

Commenting on the coupon rates for the three-tranche bond, Financial Economist and Senior Lecturer at the University of Ghana Business School, Dr Lord Mensah, said the about 5-times oversubscription for the Eurobond was influenced by the Moody’s rating which may have allowed government officials the opportunity to beat down the coupon rate.

 

“If investors show high interest in your bond issue, then you have the negotiation power to beat down the interest rate. So I’m not surprised we got better rates when compared to similar bonds issued in the past. The confidence in the economy from the ratings from Moody’s also had a role because such ratings are used by investors who don’t know your country into detail,” he said.

 

Eurobond performance

 

A delegation led by the Finance Minister, Ken Ofori-Atta, on Tuesday, February 4, 2020, completed the issuance of a US$3 billion Eurobond in three installments with interest rates better than what was realised in similar bonds issued last year.

 

A member of the delegation who spoke to Citi Business News explained that the government accepted US$1.25 billion for the 7-year-bond at a coupon rate of 6.375 percent.

 

This compares favorably to an exact tenor bond government issued in 2019 with a coupon rate of 7.875 per cent.

 

Also, the government was successful in securing US$1 billion with a maturity period of 14 years at a rate of 7.75 per cent. This rate also trumps the 8.125 percent the government accepted for a 12-year bond issued as part of the 2019 Eurobond.

 

The last of the three bonds issued was a 41-year bond, which happens to be the longest dated bond issued by an African country. The government accepted to borrow US$750 million at a rate of 8.75 per cent for the longest dated bond which matures in 2061.

 

The yield for the longest-maturity instrument dropped from the initial guidance of 9.125% and is the highest-yielding sovereign Eurobond of the year so far.

 

Prior to the 41-year bond, the longest tenor bond issued by an African country was a 31-year bond with a coupon rate of 8.95 percent also issued by Ghana in 2019.

 

Although government set out to borrow US$3 billion in its eighth Eurobond appearance, it received offers to the tune US$15 billion – reflecting investors’ appetite for Ghana’s bond

 

The proceeds from the bond issuance are expected to be used for refinancing of some maturing debts with the rest committed to provide infrastructure.

 

 

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