A Bank of America Merrill Lynch, JPMorgan Chase & Co., Morgan Stanley, Standard Bank Group Ltd. and Standard Chartered Plc arranged dollar bond issue that attarcted USD$21 billion in book orders.
Africa’s second largest cocoa producer, Ghana (B: S&P) won a global vote of investor confidence on 20 March after making a 6th appearance in the international capital markets. The West African giant sold USD$3billion in Eurobonds in a seven times (7x) deeply oversubscribed sale tranched in 7- year (7.875%), 12 year(8.125%) and 31 year (8.5%) tenors. Book orders totaled USD$21 billion symbolizing an ecstatic rise in confidence pulse in African dollar assets. The development shows that the global investor community is getting more comfortable taking a bet on Africa.
Lead arrangers of the issue were Bank of America Merrill Lynch, JPMorgan Chase & Co., Morgan Stanley, Standard Bank Group Ltd. and Standard Chartered Plc.
US Fed dovish stance supporting demand for risky assets such as African dollar bonds
With accommodative monetary policy by US Fed demand for risky assets has increased that has seen most offshore players point to African assets for safety. Ghana is a shining example of a frontier nation that tapped the opportunity to sell fixed income assets at a time when global sentiment is weak from uncertainty exacerbated by Sino – US trade impasse, Brexit and geopolitical tensions. There is nowhere in Africa one will get lucrative yields as this. African sovereign dollar bonds have returned about 9.5 percent in 2019, the most among emerging-market regions, according to JPMorgan indexes
A USD$3 billion cash injection expected to boost reserves
The Ghanaian financial markets priced in a USD$3 yard boost in reserves causing the Cedi (GHS) to rally reversing a large chunk of the brunt the currency took this year to date. The GHS was 10% weaker YTD.
Africa is now a USD$100 billion dollar bond market
The Ghanaian successful issue makes Africa a USD$100 billion Dollar bond market with key contributors being Oil producer Nigeria, most industrialized nation South Africa and North Africa’s largest economy Egypt. Other issuers are Zambia, Angola, Kenya, Mozambique, Gabon, Ivory Coast and Namibia.
Analysts predicted earlier that sub-Saharan Africa (SSA) dollar assets will perform better bullish this year, having suffered in the tough markets of 2018. Samir Gadio, Head of Africa strategy at Standard Chartered said that the improved performance “probably reflects their high-yield status, cheap valuations at the end of 2018 and lighter investor positioning at the time”.
The global investor community has by this over subscription to this magnitude signaled their faith in Ghana’s new ability to churn out strong returns on investments and consequently service its obligations. Additionally it reflects a robust investor confidence in Ghana’s future economic outlook. During the process, bids submitted exceeded USD$21 billion – compared to over USD$8 billion in bids recorded in 2018. At USD$21 billion, this is the highest ever order-book for bonds issued in Sub-Saharan Africa” Ghana’s Finance Minister Ken Ofori-Atta said.
The Minister said such high success at this time when Ghana is exiting the IMF Extended Credit Facility – ECF program is evidence that the global investor community is confident that the managers of the Ghanaian economy are on an irreversible track of stability.
“This we believe is driven strongly by the Akufo-Addo administration’s success at introducing legislation such as Fiscal responsibility act, the establishment of the fiscal council and financial stability council all designed to anchor the regained status and remove the endemic risks to macro stability” he added.
Ghana to issue longer dated local currency bonds for an industrialization plan
Rising confidence in the cocoa producing nation is propelling Ghana to flirt with the idea of lengthening duration to 50 years on its government curve. The West African country plans to issue longer-dated hard currency bonds in its next bond sale.
“We need longer-term financing for our infrastructure needs and we will naturally keep extending the curve,” Ghana’s Finance Minister Ken Ofori-Atta said.
Ghana’s Head of State Nana Akufo-Addo hinted last September that the country could issue a 100-year USD$50 billion bond to fund a long-term industrialization plan.