The Bank of Ghana has revealed that at the latest Government of Ghana (GOG) securities auction, total bond sales hit GH¢1,839.65 million showing a bounce back in investors’ confidence.
This includes the issue of a 3-year bond expected to mature in 2023 and the re-opening of a 20-year bond which was initially issued on 26th August 2019 due for maturity on 1st August 2039. Both bonds are ready for settlement/ Issue today, Monday, December 21, 2020 to both resident and non-resident persons alike.
All bids tendered for both bonds got accepted by the government with the 3-year bond making sales of GH¢1,663.18 million out of the GH¢1,839.65 million, and the remaining GH¢176.47 million representing sales from the 20-year bond.
Since, majority of the funds are usually used to repay maturing debts, the emergence of the coronavirus pandemic with its damaging effects required that the government keeps accepting all bids for bonds issued at the bond sales to enable it finance its increasing debt.
Whereas the 3-year bond had an interest/bid rate ranging from 18.75 percent and reaching up to 19.25 percent, the interest rate on the 20-year bond lingered around 20.2 percent.
Comparing this to the previous issue of similar bonds, the Bank of Ghana disclosed that at an interest/bid rate extending from 19 to 19.25 percent per annum, the immediate past 3-year bond sales amounted to GH¢650.16 million and the maiden offer of the 20-year bond summed up to GH¢162.13 million with rates ranging from 19.85 percent to 20.2 percent.
This affirms analysts’ predictions of a recuperation in investors’ confidence after the elections and the discovery of a vaccine for the novel coronavirus pandemic.
“The vaccine optimism appears to have also boosted the frontier market with a modest recovery in oil prices, boosting investor confidence” as well as very low yields in advance markets amidst a resurgence in covid-19 infections appear to be “driving foreign portfolio investors towards frontier markets like Ghana,” Courage Martey, a Senior Research Analyst at Databank said.
In contrast, Treasury bills were under-subscribed with government making total sales of GH¢971.75 million, falling short of its stipulated target amount of GH¢1,799 million. This implies government lost sales worth a whooping GH¢827.25 million, depicting a sharp decline of approximately 46 percent even though interest rates continue to remain fairly stable.
Analysts’ also expect a fall in yields on the securities market in the short-term following the drastic decline in inflation rates to a single-digit (9.8%) in the month of November 2020, though there are still some level of risks to inflation in December 2020, as a result of increased spending due to the Christmas festivity.
The bonds were however, unsecured meaning they naturally carry more risk thus, according to analysts some uncertainties continue to remain in the market with investors mindful of the COVID-19 pandemic and other fiscal challenges such as the recent election mishaps in the Ghanaian economy.
The Bank of Ghana also alerted that with a ‘bullet’ principal repayment method investors are to receive a single payment of the principal on the bonds which have a face value of “One Ghana Cedi with a minimum bid of GHS50 Thousand and multiples of GHS1 Thousand, thereafter”.
The bond Issuance is usually done through Absa, Databank, Fidelity, IC Securities, and Stanbic who act as “active joint book-runners for the bond” responsible for ensuring that transactions are executed as smoothly and efficiently as possible in accordance with the Governing Law of Ghana.
Finally, the Bank of Ghana notifies the general investing public that “the GOG Securities Wholesale Auction is opened to only Primary Dealers” who are obliged to act as “market makers” and persons interested in purchasing or selling GOG Securities may do so on “the Secondary Market (Ghana Fixed Income Market) through Depository Participants (including Primary Dealers)”.
