US$2.5bn Energy Bond likely to fail

Government’s intent to issue a US$2.5 billion bonds to clear the energy sector legacy debt is likely be unmaterialized due to the level of seeming secrecy in the whole process.

This has pushed many concerned stakeholders to demand for clear cut information on the said bond to be issued.

The Member of Parliament for Bolgatanga Central, Isaac Adongo, believes the controversy surrounding the US$2.25 billion dollar bond may impede the planned issue of a 15-year bond to clear energy sector debts.

Mr. Adongo, who is a financial expert has said, the apparent secrecy surrounding that $2.25 billion bond had eroded investor confidence.

“The biggest challenge for this debt is the fact that the international investor community has lost confidence in the Ghanaian capital market. They are not very happy with the way the $2.25 billion debt went, and they are not happy with the way government is running away from answering basic questions that will satisfy the market.”

According to the MP, indications are that, it may take about a year for the processes to start on the bond despite government having used days to raise the US$2.25 billion bond.

But, an economist, Dr. Lord Mensah has suggested that the response to government’s 15 year energy sector bond will determine the investor confidence in the Ghanaian economy.

He said, the interest to be charged by the investors would demonstrate the assurance that their investments will yield positive results.

However, the Minority in Parliament has vowed to kick against the planned issue of the 15-year bond to clear energy sector debts if the Akufo-Addo administration does not come clean on key details about this particular bond.

The NDC Member of Parliament for Yapei Kusawgu, John Jinapor, has said the Minority is trying to avoid the controversy that engulfed the $2.25 billion domestic bond issued in April 2017.

The Minority which has already called for a full-scale parliamentary probe into the $2.25 bond issue, amidst concerns over the perceived claims of secrecy and conflict of interest.

For this 15-year bond, Mr. Jinapor said the Minority is looking for “full disclosure. Other than that, we are going to kick against that vehemently.”

“I am serving notice that those of us on the Minority side will oppose it vehemently if it is not transparent, if it is not made clear and if they go through this Franklin Templeton style of raising bonds.”

Government is currently seeking a transaction advisor for its energy bond to pay the GHC10 billion debt in the energy sector.

President Nana Addo Dankwa Akufo-Addo last week reiterated the government’s willingness to soon issue the US$2.5-billion bond to retire the debt in the energy sector and create space for increased investment in the sector.

He said the government had to move quickly to address energy supply constraints by tackling the financial challenges in the sector and define a policy framework that would encourage private sector investment.

“We will very soon issue a US$2.5-billion energy sector bond to retire the legacy debt in the energy sector and create space for increased investment in the sector,” the President said.

However, the Minority has questioned the seeming delay in issuing the bond citing lack of investor confidence.

Since the announcement, Mr. Jinapor said no substantial information has been made available on this particular bond in addition to the fact the full energy debt stock is not known.

Beyond this, Mr. Jinapor said government’s approach to the energy debts “is not a very good approach”

He explained that “if you do a bond, it comes at a cost. For any money you borrow, there is an opportunity cost, there is a risk element, and the price of money you borrow is the interest.”

“What is the interest? How transparent is it? What are the flows from the Energy Sector Levy? Are they sustainable to pay on a year basis? If it is sustainable, why then must you go for that loan? They are simply going to borrow against the levies,” Mr. Jinapor noted as some questions he had on the matter.

Per his assessment, the government wants to borrow money to pay the debts so that the inflows will be used to service the loan.

In Mr. Adongo’s view, the government is buying time to see if it can manoeuvre and get the Minority in Parliament to back down on its claims of conflict of interest, among others.

“They are going to use six months to get a transaction advisor. That transaction advisor will spend another three months to come back to advise government, then you start a process basically to push it into one year, by which time they believe the investor community would have forgotten about this fraudulent deal which has rocked Ghana.”

“They should rather be doing a lot to allay the fears and concerns as to how one of the most efficient financial markets in the world suddenly became a Ponzi financial system,” the MP asserted.

He said, “The truth is they know that the investors are running away from this bond.”

The Vice President, Dr. Mahamudu Bawumia earlier this year noted that the 15 year energy bond was crucial to develop the State Owned Enterprises in the energy sector.

The debts which amounts to US$2.5 million is said to have affected the operations of the institutions including banks, VRA and the Bulk Distribution Companies (BDCs).

Commenting on the likely response from investors to the energy sector bonds, Dr Lord Mensah stressed that the decision to use the proceeds from the Energy Sector Levy Act to collateral for the bond should bring some confidence among investors.

“This is a bond that is earmarked for a specific sector not like the earlier bond which is more or less a general debt relief bond…it is going purposely to rescue a particular sector,”

Dr. Lord Mensah has said, the commitment of the investors will reflect in the success or otherwise of the issue.

“Presumably, the litmus test for the investor confidence wasn’t that clear in the earlier bond. But going forward, if the new bond will be private placement like the earlier one, then the commitment from the individuals who are going to bid as far as that bond is concerned, then it will determine how much confidence they have in the economy,” he stated.

Meanwhile, Finance Minister Ken Ofori Atta is insisting that fresh bonds being issued will not result in a drastic increase in the debt stock.

The assurance follows criticisms the three-year bond that would be sold this week together with the 10-year energy bond, would balloon the public debt, which has reached GHS127 billion.

But, the Finance Minister has said, what government is doing would rather end up reducing the debt stock.

Government should by the end of first half of this year raise almost GHS40 billion in bonds and treasury bills. About GHC30 billion of this amount would be advanced towards financing existing debts, with the remaining acting as buffers for government.

Ghana recently issued, for the first time, a 15-year local-currency bond, raising in that cycle more than US$2 billion.

According to the government, it was an evidence of the returning private investor confidence in Ghana, adding that because investors made decisions on the basis of their perception of risk and uncertainty, that transaction sent a clear message to the markets that the new government, under his leadership, had started on a sound footing and that Ghana was on a path of fiscal consolidation, debt sustainability and growth.

Source: Adnan Adams Mohammed

Ghana News Online

The primary function of is to gather, process and distribute news about Ghana and Africa to the World. To serve as a News Agency with the mandate to present complete, in-depth objective and impartial information, news, and features rooted in investigative journalism.

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