I am a citizen
I am the son of a gong-gong beater.
Ken Ofori-Atta, is Ghana Sovereign bond of US $2.25 billion safe?
It would be recalled that the Ministry of Finance in March 2017, through its book building process, issued 7 and 15 years bonds at a staggering coupon rate of 19.75% for a total coupon value of US $ 2.25 billion to Franklin Templeton, an investment Fund company based in the United States.
This transaction raised a lot of questions bordering on conflict of interest and economic pundits were wondering why a single firm could secure 95 percent of a Sovereign bond at a value of US $2.25 billion.
Before the 2016 election, then NPP Flagbearer Nana Akufo-Addo made an emphatic statement that “at all cost we need to win this election ” when he met New Patriotic Party Delegates.
He encouraged his cronies to fight for power because they needed to be government.
According to deep throat sources and a document sighted titled “THE WAY FORWARD AFTER NANA AKUFO ADDO IS SWORN IN AS PRESIDENT OF GHANA,” and signed as “OKYEMAN YEN WHE MA ENSEI’, it was stated in that leaked document that the Akyem Trinity had a devilish agenda to put Papa Kwesi Nduom and Kwabena Duffour in continuous check to control their financial growth.
They also needed to cut their businesses down to size while the Akyem Trinity prepare themselves to overtake them in financial growth. They went on to say that they would build a financial empire by giving themselves absolute control over all major significant government contracts. They will again be responsible for investigating and re-awarding all existing contracts to give them the opportunity to dip their hands into government chest.
A Global Strategist and Management Consultant, Dr Jerry Monfant of MBIC Group wrote in an article titled “Ghana should be worried as Franklin Templeton faces Financial Default,” and stated that this played on the Mutual Fund firm’s influence and expertise in negotiating for high interest rate in its favor and profit considerations being at the top of its objectives.
Dr Mofant also stated that a high coupon rate is attributable to the following economic records and characteristics of a country. i.e Poor growth outlook, high debt burden, a weak currency, little ability to collect taxes, and unfavorable demographics, and may be unable to pay back its debts.
He also said that these are the assessment an investment firm as Templeton considered before negotiating for such a high yield bond.
He finally said this goes to confirm our long held conviction that our economy is really broke and vulnerable.
The Ghanaian Financial Sector had suffered a heavy setback with the collapse of banks and financial institutions and it will take a very long time for the financial sector to get back on its feet.
On 9th June, 2020, Rahul Satija authored a story in The Print News Paper in India about Franklin Templeton being barred from liquidating India funds until a forensic audit is completed.
An Indian court in Mumbai barred Franklin Templeton from liquidating the debt funds it abruptly shut in April, until it disclosed the findings of its forensic audit amid allegations of fraud, prolonging the unitholders’ wait to recoup an amount equivalent to $2.6 billion invested in the plans. https://theprint.in/economy/franklin-templeton-barred-from-liquidating-india-funds-until-forensic-audit-is-shared/438645/
The hurdles facing India’s biggest-ever forced fund closure means about 300,000 unitholders may have to wait longer to recoup the money invested in the six frozen funds.
Another story authored by Jayshree P. Upadhyay on the 11th of June 2020 and published on https://www.livemint.com/companies/news/supreme-court-to-hear-franklin-templeton-investors-plea-on friday-11591885717014.html “Supreme Court to hear Franklin Templeton investors’ plea on Friday” mentioned that the Supreme Court will hear the petition for admission; simultaneously Gujarat High Court will also begin hearing arguments on main grievances raised by petitioners.
With each passing day, the legal troubles and mess around refunding investors of Franklin Templeton India is escalating. The Supreme Court will hear a petition filed by a group of eight investors against Franklin Templeton and its decision to wind up its six debt schemes on 23 April.
This is the fourth court case Franklin has to battle against investors who are stuck in 6 shuttered debt schemes.
According to Dr Jerry Mofant, in a situation of this nature, Ghana is boxed to pay a double rate or call it a double high cost. One is the exchange rate and the other is the high interest rate.
A fragile economy such as ours can easily be crippled by some of these economic decisions and render the country vulnerable to any economic shock.
Some Experts with knowledge of the markets inducate that in the world of international finance, bonds issued at such a high yield are termed as a junk bond, because, the foundation of the yield is based on how weak an economy is rated. It also confirms long held conviction about how an economy is struggling.
Franklin Templeton is struggling in India as major companies are defaulting to the Mutual Fund Firm and investors are worried Franklin Templeton may not be able to pay back their investment funds as the company faces financial crisis.
The Mutual Fund Company jolted investors with decision to wind up six yields oriented managed credit funds from Friday 22nd May, 2020.
The six schemes are, Franklin India low duration fund, Dynamic Accrual Fund, Credit Risk Fund, Short term Income Plan, Ultra Short Bond Fund, and Income Opportunities Fund.
These funds constitute about 25% of Assets under management of Templeton and this is quite scary.
This essentially means that Franklin Templeton will first have to liquidate the assets in the schemes and then refund the money to the investors who placed their funds in any of the mentioned schemes.
Now, with the market being so sluggish and tough, investors may not get their money as early as expected.
As the Experts say, the reason is that it will be difficult to get a buyer for low-rated assets in the portfolio, so investors may have to wait longer.
Investors will have to pay a hefty price for inappropriate investments of their funds by Franklin Templeton.
The Mutual Fund Firm has an appetite for investing in a credit risk funds. Just like its investments in Ghana which are classified as a low-rated bond.
Credit Risk Funds are debt funds that plays on the principles of high-risk –high-reward. By definition, credit funds invest 65% of the portfolio in bonds that are AA rated or below. In Ghana, our rating was B stable by Fitch, a rating agency, which was still far below AA.
In 2020, Ghana’s rating has deteriorated to B3 negative by Moody rating agency.
As the panics continue and anxiety sets in, Ghana should be on the lookout.
I hold a conviction that the issue is not simple and also not limited to the default in payment by Infra-Project limited, one of the defaulting companies, Templeton risk exposure is very high and they have high non quality assets than quality ones in their portfolio.
While others may attribute the situation to redemption pressures in the financial system due to the outbreak of COVID-19, I disagree with such position. And my reason is that investing in low rated bonds for the sake of high interest payment just as in Ghana’s situation can just simply be dangerous.
As the panic continues and anxiety heightens among the investor community, Franklin Templeton could be forced to make an early demand for Ghana to redeem its bonds held by the company in order to raise funds for its investors.
Ghana’s decline in gross national savings, weak current account position and our back-end ratio looking very unfavorable, if Ghana is pushed to redeem the bond together with the 19.75% yield on demand by Franklin Templeton, it could trigger an early financial crisis in the country.
The question one may ask is, is Ghana at risk with the US $2.25 billion from Frank Templeton?
As Ghana is already debt distress and the economy is heading for crisis, it is my passionate desire that the country’s economic managers gives these happenings a closer look.
Ghana would require a plan B in the waiting to avoid possible default on early demand of bond redemption initiated by Templeton and also avoid a needless legal tussle.
The Minister of Finance has stated that the economy of Ghana can only bounce back after 3 years.
The Government of Ghana should be up and doing because Franklin Templeton is bankrupt elsewhere and could be in Ghana soon
I remain the echoing voice of a village scribe and the son of a gong-gong beater.
TT Caternor
La Dadekotopon