2016 Eurobond to attract significantly high yield

eurobondEconomist Dr Ebo Turkson has warned Ghana will attract a much higher yield if it goes ahead to issue another Eurobond early 2016.

It’s unclear what figure government intends to go for but Finance Minister Seth Terkper earlier asserted that the issue would be more than $500 million with at least a 15-year maturity.Ghana successfully issued its fourth Eurobond in October, 2015.

However it had to cut back on its initial figure to get a better rate for the bond Government initially announced it would issue a 1.5 billion dollar Eurobond but ended up taking  1 billion dollars after getting 2 billion dollars from investors.

It got a yield of 10 .7 percent as against the 11.5 percent investors demanded the week before. However at 10.75 percent, the yield on the bonds is still much higher than government’s initial target of 8.5 percent and also higher than the previous one which had coupon rates of 8 and 8.5 percent for its two billion dollar- bond issued.

The World Bank’s guarantee of 400 million dollars on the bond as well as plans by government to set up an infrastructure fund to use proceeds from the country’s Eurobonds played a key role in Ghana getting that yield that is 10.75 percent.

To make up for the cut among others Seth Tekper has asserted Ghana is likely to issue a Eurobond early 2016 as the “window is closing” for a planned 2015 issue.

But economist Dr. Ebo Turkson fears government may attract at least a 11 percent yield on the bond if the US Federal reserve increases its rates and Ghana goes ahead to issue early next year.

“We paid 10.75 the last time we are going to probably with a higher rate especially given the fact that by that time the US Fed rate has been increased and if it does and the UK also somewhere in February then it means that we need to entice investors with a higher yield for them to decide not to send their monies to the US or UK but to give that money to you so that is the challenge that we will be facing… the way government is desperate for the money, the investors will also want to see if they will get a higher rate which will definitely be much higher,”

He adds “some of these decisions are made in order to balance in terms of the performance of the economy even if you can even do that and you don’t go for the money, you will have no foreign currency to cushion the cedi and being in an election year, the politician might use that as a strong case that the economy is being mismanaged.”

source: citifmonline.com

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