Ghana’s Dollar Bonds Slump 10% As Investors Further Lose Confidence

Ghana’s dollar bonds slumped 10% over the last week according to a report by Bloomberg.

The slump which happened in just a period of 10 days has further worsened the country’s creditworthiness as investors judge that re-financing debt in the Eurobond market (borrowing to pay debt) won’t be an option because the US Federal Reserve hikes rates and budget targets remain unknown.

According to the report, extra premium (extra cost of borrowing) demanded on Ghana’s sovereign dollar debt jumped on Wednesday to an average 1,105 basis points, from 683 basis points in September.

According to Bloomberg index points out the country’s $27 billion of foreign debt had the worst start to the year among emerging markets, extending last year’s 14% loss.

It said investors are worried that debt-ridden Ghana cannot pay back if it is lent money because its huge debt burden means the country cannot exactly be trusted to pay back what it borrows. Besides, due to the poor credit rating, if it even becomes opportune to borrow money investors will demand higher premiums as pre-condition.

And these high borrowing costs are likely to shut the country out of the international money market.

Government debt climbed to 81.5% of gross domestic product at the end of last year, from 31.4% a decade ago, according to data compiled by Bloomberg.

“The market has woken up to the fact that this is a country with a lot of outstanding bonds,” Bloomberg quotes Kevin Daly, investment director at Aberdeen Standard Investments in London, as saying.

Mr. Daly adds, “A lot of people went into last year with overweight positions and a lot of them have started to throw in the towel.”

Ghana’s $750 million bonds is due in March 2027. However, on Thursday, it fell 10 cents to 79.4 cents on the dollar, sending the yield to nearly 14%.

Also, Bloomberg reports that Of 14 Ghanaian dollar bonds, 13 are trading with an extra premium of at least 1,000 basis points, a level considered distressed.

The debt accumulation is the making of the Akufo-Addo government which has spiked the country’s debt to some Ghc340billion after inheriting a legacy debt from the Nkrumah era of Ghc120billion in 2017.

The cause of the debt has largely been due to a corrupt arrangement in which Finance Minister, Ken Ofori-Atta’s private company, Databank Financial Services earns money anytime he borrows because Ofori-Atta has corruptly hired Data Bank as a so-called bond market expert.

And it is not only Databank that has been benefitting, his insurance company, Enterprise Insurance, is also hired by the government to underwrite bonds.

Besides Ken Ofori-Atta’s private companies, a company belonging to Minister of State at the Finance Minister, Charles Adu Boahen, Black Star Advisory, has also been earning government contracts.

It is believed that the government’s penchant for borrowing is because of the money that appointees like the Finance Minister get to cream off.

Meanwhile, according to Bloomberg, the government’s failure to pass the e-levy in November also made investors doubt whether it has the political capital to pass revenue-raising measures in parliament or reign in spending to reduce borrowing needs.

Source: Whatsupnewsghana