The Bank of Ghana has today, 2nd March 2021 released an initial pricing guidance following the government’s intention to issue a 5-year bond, tapping the domestic markets for financing.
The debt security is issued by the government to raise money to support its spending and obligations including the financing of projects, to redeem maturing debts as well as to cover recorded budget deficits. Also, this will go a long way to increase diversification of investor base and funding sources, enhancing capital inflows, liquidity, and the development of the Ghana financial markets.
Although these government-backed bonds are nearly risk-free in nature, the Bank of Ghana, cautions that the 5-year bond is unsecured and as such can carry risks including country risk, political risk, and central-bank risk.
“Government bonds can provide a combination of considerable safety and relatively high returns. However, investors need to be aware that governments sometimes lack the ability or willingness to pay back their debts,” said James Chen, a guest expert for CNBC, Bloomberg TV, Forbes, and Reuters.
In a statement, the Central Bank named five financial institutions including Absa, Databank, Fidelity, IC Securities, and Stanbic, that would be involved in the auction as active book-runners for the bond ensuring that transactions are executed as smoothly and efficiently as possible. Listing of the bond is to be done on the Ghana Stock Exchange (GSE), in accordance with the Governing Law of Ghana for distribution to both Resident and Non-Resident Investors.
The issue price of the bond at the Initial Public Offering (IPO) is to be determined through a book building process, which involves inviting investors to submit bids for the number of shares and the price they would be willing to pay for them. Also, each bond shall have a face value of One Ghana Cedi with a minimum bid of GHS50 Thousand and multiples of GHS1 Thousand thereafter.
Furthermore, the bond is slated to mature by 2026 with a settlement/ Issue date effective Monday, March 8, and investors should also expect to receive a single payment of its principal upon maturity because a ‘bullet’ principal repayment method applies to the treasury issuance.
The issuance methodology adopted requires that bids are accepted on a yield (percentage) basis and “all successful bids will clear at a single clearing level” and will be subject to “discretionary allocation at the single clearing level in event of over-subscription”.
A summary of procedures regarding the offer period including the pricing, book-build, and allocation methodology indicates that after the release of the Initial Pricing Guidance, a “Revised Pricing Guidance” will be made available tomorrow, March 3 at exactly 9:00 AM for carrying out the book-building process.
Subsequently, the Final Pricing and Allocation of the 5-year Treasury bond will follow suit on Thursday, March 4 and involves the release of a “Revised and Final Pricing Guidance” deemed necessary during the book-build.
The Bank of Ghana further alerts that the “books are expected to close around 3:00 PM on Thursday,” so all bids are to be received before the set time because the offer price of the bond is going to be determined after the closing date.
Despite a decline in inflationary pressures marginally and arrival of vaccines in the country, which is likely to boost investor sentiment on the financial markets to bolster capital inflows and enhance the country’s liquidity position, volatility continues to remain in the near term due to concerns of the new strain of the coronavirus pandemic and other fiscal challenges in the Ghanaian economy.
