Ghana's Foray Into Eurobond Market Comes at a Tricky Time

(Bloomberg) -- Ghanaian officials are preparing to meet fixed-income investors in the U.S. and London this week as they look to issue a Eurobond. But it may be a tough sales pitch.

Ghana, rated six steps below investment grade at B3 by Moody’s Investors Service, has chosen Bank of America Merrill Lunch, JPMorgan Chase & Co., Morgan Stanley, Standard Bank Group Ltd. and Standard Chartered Plc to organize the meetings, which start Thursday.

The banks may then arrange a benchmark dollar bond with maturities of seven and 12 years, and perhaps longer, according to a person familiar with the matter. The West African cocoa and oil producer has also offered to buy back as much as $250 million of its $2 billion of Eurobonds maturing in 2023 and 2030.

The government seems keen to do a deal imminently, but only if it’s satisfied with the price that traders demand. That’s a big if, given Ghana’s battling to shore up the world’s weakest currency this year and perceptions it won’t manage its finances properly once a four-year bailout with the International Monetary Fund ends next month.

The nation needs $2 billion in foreign-currency debt to help finance its 2019 budget and will seek additional $1 billion if it’s able to issue the securities at lower rates than what it’s paying for existing bonds.

Finance Minister Ken Ofori-Atta is negotiating a $750 million bridge loan from Standard Bank and Standard Chartered to tide the government over in what he says has been a “quite challenging” first quarter. It would be repaid with the Eurobond.

“Confidence in Ghana has ebbed a little in 2019 relative to other Africa sovereigns,” said Gregory Smith, a strategist at Renaissance Capital in London. “Investors have concerns that Ghana’s recent good record with fiscal discipline might unwind over the next year, especially as the IMF program ends and the 2020 elections are on the horizon.”

Ghana does have strong economic growth in its favor -- gross domestic product will expand 6.6 percent this year, according to the average forecast from analysts surveyed by Bloomberg -- but revenue collection is low compared to peers, Smith said.

The cedi depreciated 2.9 percent to a record low of 5.86 per dollar on Tuesday, extending its drop in 2019 to 15 percent. President Nana Akufo-Addo said last month he was “extremely upset and anxious” about the currency’s slide.

Cheap Currency

On the surface, there seems little reason for the bearishness. RenCap says the cedi is one of the cheapest currencies in Africa, based on real effective exchange-rate models. And even after a cut by the central bank in late January that surprised analysts, the real interest rate is one of the highest on the continent at almost 7.5 percent, according to Standard Bank.

But that seems to matter less to investors than the IMF’s impending exit and elections. The nation has had a “terrible fiscal record” in recent election years, RenCap said in a separate notes to clients on Tuesday.

Convincing investors it won’t go on a spending splurge ahead of the vote, even without the IMF’s guiding hand, might help Ghana’s Eurobond ambitions. Otherwise, issuing $3 billion of debt in one go -- in what would be one of the biggest deals from emerging markets this year -- may prove to be pricey.

To contact the reporter on this story: Paul Wallace in Lagos at pwallace25@bloomberg.net

To contact the editors responsible for this story: Dana El Baltaji at delbaltaji@bloomberg.net, Hilton Shone, Alex Nicholson

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