ESLA set for additional bonds issuance

In the coming months, ESLA Plc will issue additional bonds to paydown part of the government’s energy sector “legacy” debt obligations, which have been accumulated over the years.

This bond issuance has been made feasible by the enhancement of inflows into the ESLA, as a result of the increment in the energy debt recovery levy by government during the 2019 mid-year budget review.

Information available to Goldstreet Business indicates that in view of this, ESLA is proposing to bondholders an amendment to decrease the Debt Service Coverage Ratio from 2x to 1.25x under Condition 12.3(c) of the Prospectus, in order to issue the impending additional bonds for the outstanding energy sector debts.

This means projected ESLA inflows would only be required to cover one and a quarter times the value of debt servicing obligations to bond holders rather than two times as agreed with bondholders at the time of the offer, which indeed provided the comfort that influenced them to subscribe to the bonds. By reducing the cover, more ESLA bonds can be issued for the same expected inflows from the levy underpinning their issuance.

In effect, ESLA is expected to make some necessary changes to the “E.S.L.A.” Bond Programme Prospectus.

In 2017, ESLA Plc successfully issued the first E.S.L.A. Bonds, Tranche E1 and Tranche E2 maturing in 2024 and 2027 respectively, raising GHc 4.784 billion in total. An additional GHc 880 million of Tranche E2 was also raised in 2018. E.S.L.A. Plc has also issued Tranche E3, a GHc 1 billion issuance due to mature in 2029.

The current outstanding issuance is GHc 6 billion, on the back of a total issuance of GHc 6.664 billion, out of which GHc 664 million was redeemed in a buyback transaction financed with funds from the Lock Box account.

The Bonds are backed by the Energy Debt Recovery (EDR) Levy imposed under the Energy Sector Levy Act.

ESLA Plc is confident that the Debt Service Coverage Ratio (DSCR) required will be met for the balance of the scheduled tenors of the outstanding bonds and the further indebtedness of borrowed money.

The energy debt recovery levy is meant to facilitate the debt recovery of the TOR, as well as the downstream petroleum sector foreign exchange under-recoveries and power generation and infrastructure support.

Following the issue of the bonds, State Owned Enterprise debts amounting to approximately GH¢5.3 billion have been settled.

Nevertheless, the sector is still crippled with debt over US$ 4 billion owed to both local and foreign creditors.

Background

ESLA consolidates existing energy sector levies and redefines a framework to correct imbalances, promote financial viability of Energy Sector State Owned Enterprises (SOEs) and facilitate investments into the sector. The levies imposed by the ESLA are derived from the sale of petrol, diesel, marine gas oil, residual fuel oil, liquefied petroleum gas, kerosene, and electricity within Ghana.

ESLA Bonds have seen satisfactory demand and liquidity. Data from the Central Securities Depository as at September, 2019 shows that ESLA Bonds account for 6.26 percent of total bonds outstanding. The bondholder profile is as follows: Domestic Investors, 99.51 percent; Offshore Investors, 0.49 percent.