Ghana, whose total Eurobond debt now stands at $3.5 billion, plans to sell $1 billion more Eurobonds by October 2016 — its fifth issue — despite concerns about rising borrowing costs.
Just a week ago, the government was considering asking banks for private loans instead of its usual Eurobond because of the rising cost of issuing debt abroad, according to a Ministry of Finance presentation, Bloomberg reported.
In February 2015, Ghana secured a $1 billion International Monetary Fund loan in an effort to shore up its ailing economy, BBC reported. The bailout was considered necessary to restore investor confidence after commodity prices fell including gold, and the currency depreciated in 2014.
Ghana is the world’s No. 2 cocoa producer.
The country issued its first Eurobond in 2007, successfully raising $750 million at a coupon rate 8.5 percent. Now the government needs the cash to retire it — it matures in 2017, Finance Minister Seth Terpker told Citi Business News.
A second Eurobond followed with another $750 million in 2013, while 2014 and 2015 each saw another $1 billion added to the debt.
“Ghana is already in the market…So we have to think about the way to pay for the debts,” Terpker said, according to GhanaWeb.” There are more Eurobonds outstanding, including those due to mature in August 2023 and January 2026.
Yields on Ghana’s $1 billion of Eurobonds due August 2023 rose as much as 4 basis points to 11.14 percent from as low as 11.05 percent before the announcement, Bloomberg reported.
The plan is to sell $2 billion in bonds by the end of 2016 to consolidate debt of four state utilities, said Thomas Akabzaa, chief director of the Petroleum Ministry.
“We are in negotiations with a number of banks,” Akabzaa said. The debt “will be financed through a 10 percent tax on electricity tariffs and a surcharge on petroleum products,” he said.
The bond’s proceeds will clear $1.5 billion of debt run up over 20 years by utilities including the Volta River Authority, Ghana Grid Co. and some power distribution units, Akabzaa told Bloomberg.
Like Ghana, other African countries have issued sovereign bonds including Democratic Republic of Congo, Gabon, Côte d’Ivoire, Senegal, Angola, Nigeria, Tanzania, Namibia, Rwanda, Kenya, Ethiopia and Zambia, Ghanaweb reported.
This doesn’t bode well for Ghana, which is expected to repay a principal amount of $750 million in 2017, according to Ghanaweb. There are fears that Ghana is headed for more financial crises.
Ghana has $23.38 billion in both local and external debts, including external debt of more than $11 billion. This represents more than 55 percent of gross domestic product, TheConversation reported.
“We should not be complacent about the dangers of big projects built on sovereign debt,” said Emmanuel Mutebile, governor of the Bank of Uganda. “It would be unwise for African countries, which will never again get debt relief. From what we are seeing in Ghana, we are not yet ready to issue sovereign bonds.”
