Ofori-Atta lauds indigenous firms’ role in $3bn bond sale

April 19, 2021 / Comments (0)

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The Minister of Finance, Mr Ken Ofori-Atta, has lauded the role played by five indigenous financial institutions in raising $3.025 billon in Eurobond for the country.

The institutions which led in raising the bond last month are Fidelity Bank Ghana Limited, Cal Bank PLC, Databank Brokerage Limited, IC Securities (Ghana) Limited and Temple Investments Limited.

They acted as co-managers of the transaction, which turned out to be the country’s largest bond sale in history and featured a novel zero-coupon Eurobond, the first of its kind by an emerging market economy.

Mr Ofori-Atta told the Daily Graphic in Accra that he was delighted with the role of the indigenous firms in the issuance processes, saying their active involvement was a testament to the fact that the effort by the government to develop indigenous capacity in the banking and financial sectors was yielding the expected results.

Beyond helping investors domiciled in the country to access the international capital market, he said, the arrangement also ensured that almost 50 per cent of the novel zero-coupon bond was taken up by resident investors, a development that was positive for the economy.

“For the first time in Africa, we have seen local managers drive significant local market participation in fund-raising in a global Eurobond. Close to 50 per cent of the zero-coupon bond was taken up by the local market through the efforts of the local co-managers, ” Mr Ofori-Atta added.

Co-managers’ role

Known as co-managers in finance parlance, the five indigenous firms played supporting roles to the joint lead managers in the issuance that was oversubscribed, in spite of the grimness that the COVID-19 pandemic posed to investor appetite.

They worked with their foreign counterparts to develop investor presentation, fashioned out the liability management strategy and coordinated logistics for the first ever virtual roadshow outside Accra.

That helped to aggregate what turned out to be significant domestic demand for all tranches of the Eurobond, with the largest being the debut zero-coupon bond.

Experts say the demand for the local co-managers came mainly from domestic indigenous investors, and that provided access for Ghanaian investors on the international capital markets

Historically, local co-managers have contributed relatively lower amounts to the total order books.

However, in recent years, there have been improvement in local co-managers’ contribution to the total order book, with each successive issuance enjoying an increment.

The successful collaboration between the local co-managers and the joint lead managers in the 2021 bond sale is said to have resulted in oversubscription by investors and the government securing favourable interest rates for the four-tranche Eurobond, in spite of the impact of the COVID-19 and the energy and the financial sector debts on the 2020 fiscal deficit.

Significance

Mr Ofori-Atta said the gains from the local co-managers showed growth in the financial sector.

According to the minister, Ghana was currently the only country in sub-Saharan Africa to have “logistics for global issuances managed by local entities”.

He said while the local co-managers supported the joint lead managers in the various streams of work, including the investor presentation and the development of the liability management strategy and logistics for the virtual roadshow, “there is the desire for local institutions to take on other lead roles in a bid to localise a significant portion of the work for global and local fund raising efforts”.

Novelty

The $3.025 billion Eurobond was novel, as it was the largest Eurobond issuance by the country and also marked the first time a zero-coupon bond denominated in US dollar had been issued by an emerging market economy for new money or outside of a restructuring.

It also marked the first time that four tranches had been issued by a country in sub-Saharan Africa.

Of the amount issued, about $1.5 billion of the 2021 Eurobond, which was approved last year, is to be used to finance this year’s budget deficit.

It followed elevated pressures on the public purse as a result of the COVID-19 pandemic and the rolling out of measures by the government to stop the spread and mitigate the impact on lives and livelihoods.

The government also plans to use part of the proceeds to pay off existing debts that are relatively expensive and closer to maturity.

Known as liability management, the practice helps reduce the average cost of debt and create fiscal space for the government.

Source: Graphic Online

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