Ghana's fiscal pressures could weigh on Eurobond pricing


But the fast-growing West African country has probably missed its moment to get the lowest yield.

The cocoa and gold producer, which discovered oil in 2007, should benefit from still strong investor appetite for rare African sovereign debt. But its strengths, including a record of political stability, are tempered by a deteriorating fiscal position due to rising public debt and a large budget deficit, analysts said.

Investors therefore are likely to demand a premium before handing over their money and Ghana will pay more than if it had come to the market in April, even though risk appetite is returning and yields on African Eurobonds have fallen in the past month.


“They clearly missed the window of opportunity earlier this year when rates were much lower and the market was more risk-on,” said Samir Gadio, emerging markets strategist at Standard Bank. “They’re going to have a higher external funding cost.”

The yield on Ghana’s 2017 bond has fallen from a high of 7.4 percent in June to below 6 percent, but back in April it traded as low as 4.24 percent.

Ghana is the latest African country to take advantage of global investors’ hunt for yield in the past year, following on the heels of Zambia, Nigeria and Rwanda, whose offerings were eagerly received.

An investor roadshow for the new Eurobond was due to end in New York on Wednesday and an issue could follow this week, according to lead managers Citigroup and Barclays The tenor has not been decided.

President John Dramani Mahama’s government, which took office early this year, has said it will use the bond for capital expenditure and refinancing public debt to reduce the cost of borrowing.

It will be Ghana’s second foray into international bond markets. In 2007, it became the first sub-Saharan African country besides South Africa to issue a Eurobond with a 10-year issue.

Analysts contacted by Reuters forecast a yield of between 5.8 percent and 8 percent, at a premium to the 2017 bond which is currently trading at 5.688 percent, but lower than the 8.5 percent at which that instrument was sold.


Ghana’s economy is expected to grow by 8 percent this year and the country can boast more than a decade of democratic rule.

Unlike fellow oil producers Nigeria and Angola, Ghana’s economy is also more diversified, said Razia Khan, Standard Chartered’s head of research for Africa.

“Those countries are much more dependent on oil for their foreign exchange earnings (and) fiscal earnings,” she said.

But Ghana’s weak fiscal position will be of significant concern to investors, said Angus Downie, Ecobank’s head of economic research. Its budget deficit surged to 11.8 percent of gross domestic product in 2012, from 4 percent in 2011, according to a prospectus for the Eurobond.

Public debt increased to 49.4 percent of GDP in 2012, from 40.8 percent in 2011.

Ghana is rated B by Standard and Poor’s and B+ by Fitch, which revised the country’s outlook to negative from stable in February.

The government has said it aims to reduce the deficit to 9 percent of GDP this year and in May scrapped costly fuel subsidies to help restore fiscal stability, but analysts have doubts. “That’s one of the Achilles’ heels that Ghana has,” said Downie.

“The question (investors) will be asking is can Ghanaian authorities bring down that deficit to 9 percent … If they can’t, it does raise questions about how will they service this Eurobond as well as all the domestic debt they’ve issued.”