The government issued the bond in two separate tranches of seven years and 10 years but managed to realise only GH¢3.4 billion, a little over half the expected amount.

Breakdown

As at the close of day last Friday, orders received for the seven-year ESLA Bond was GH¢2.5 billion, but the government issued GH¢2.4 billion at a coupon of 19 per cent.

Unfortunately, the current book size for the 10-year ESLA Bond as the same period under review was approximately GH¢902million.

However, following another reverse enquiry from investors, according to officials of

Standard Chartered Bank and Fidelity Bank, “the closing date for this bond has been extended to Friday, November 3, at 5 p.m.”

“The final price guidance for the 10-year ESLA Bond is 19.50 per cent. The extension is to enable investors complete their internal credit processes for the ESLA Bond,” they said.

Meanwhile, they said the seven-year “ESLA Bond book has been closed and would settle on Wednesday, November 1, 2017”.

Bid closure

On whether the date will be extended to allow for further bids, the officials said “The Sponsor (Ministry of Finance) and the Issuer (E.S.L.A. PLC) are confident in the transaction structure, and hence do not want to pay interest above certain levels. It is for this reason that the sponsor indicated that they were seeking to raise amounts up to GH¢2.4bn for the seven year bond and amounts up to GH¢3.6bn for the 10-year.”

Still confident

They explained that the deal had been a success so far with the seven-year ESLA bond oversubscribed and priced at 19 per cent, “approximately +120 to comparable government securities.

“We are confident, we close a decent size on the 10-year later this week at the current guidance of 19.5 per cent, approximately +180 to comparable government securities,” they said.

The officials said the maximum amount under the ESLA programme that the structure allowed to be issued, based on current cash flow projections and required coverage ratios, was GH¢6bn, but it had also been designed as a programme.

That, they explained, meant that the issuer had the flexibility to drawdown in stages taking into account demand and price consideration.

According to them, “price is an important consideration for the Ministry of Finance, and they have demonstrated that they have a prudent and responsible approach to pricing. It is important not to overpay. The structure is robust and the yield is expected to contract over time.”

On the question of security to the law on the ESLA Act, they said: “The bond prospectus and supporting documentation, including, but not limited to the assignment agreement and trustee agreement, have been structured to ensure that investors are adequately protected.”

Investor interest waning

Based on the performance of the bond, there are fears about investor interest waning on government bonds, a phenomenon which, when proven, could spell dire consequences for the government which is already under performing when it comes to revenue generation for the first three quarters of the year.

But the officials downplayed the fears, saying: “This is a new asset class being issued out of Ghana and the broader region.”

Background

The auction of the GH¢6 billion cedidenominated energy sector bond began last week Tuesday as the government sought funds to refinance the huge energy sector debt which has contributed to the unprecedented high levels of non-performing loans (NPLs) on the books of the banks.

Local and offshore investors, made up of local pension fund managers, were briefed on the nature and structure of the bond, which has been described as a better alternative to government papers (Treasury bills) on the market because of its size and risk profile.

The bond was issued in two tranches of GH¢2.4 billion and GH¢3.6 billion, and had a seven-year and a 10-year tenure, respectively.

The Ghana cedi-denominated bond is listed and traded on the Fixed Income Market of the

Ghana Stock Exchange (GSE) under conditions yet to be announced.

E.S.L.A. Plc (unrated), an independent special purpose company established and sponsored by Ghana, acting through the Ministry of Finance, appointed Standard Chartered Bank Ghana Limited and Fidelity Bank Ghana Limited to arrange a series of fixed income investor meetings prior to the roadshow.

Co-managers of the mandate are Temple Investments and GCB Bank.