The Ghana Eurobond Transaction

Report
THE GHANA 2013
EUROBOND
TRANSACTION
Press
Conference on
12 August
2013
1
GOALS
 Diversify Sources of Funding
 Consolidation of middle income status
 Decreasing flow of concessional financing
 Reduce the debt service cost and rollover risk of the Ghana
2017 bond
 Reduce the cost of government financing
 Current cost of domestic financing 19-21%
 Improve tenor/length of financing the capital budget
 Compare tenor of 3 or 5-year (or proposed 5-year) domestic bonds to
the 10-year tenor for Sovereign Bond
2
PLANNED USE OF PROCEEDS
AMOUNTS
INDICATIVE AREAS
USD (MILL) %
GHS %
Counterpart funding for approved projects
102 10% 204 10%
New Projects in 2013 Budget
307 31% 614 31%
Early Redemption of Ghana 2017 Eurobond
250 25% 500 25%
Refinancing of maturing Domestic debt
341 34% 682 34%
Total
1,000 100% 2,000 100%
3
THE PROCESS
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Budget Proposal (March 2013)
Cabinet approval (April 2, 2013)
Parliamentary Approval (26 June 2013)
Recruitment of transaction advisors (June 2013)
Preparation of transaction documents (June -July 2013
Marketing of Bond (road show) (22 -25 July, 2013)
Launch of Transaction (25 July 2013)
Pricing (26 July 2013)
Launch of bond exchange of fer (26 July 2013)
Issue & Closing (7 August 2013)
4
TRANSACTION TEAM
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Lead Managers (Citigroup, Barclays)
Co-Managers (EDC Stockbrokers, Strategic African Securities)
International legal counsel (Denton’s)
Local legal counsel (JLD & MB)
Government of Ghana Transaction Committee (MoF, Bank of Ghana)
5
ROAD SHOW
 Ghana’s investor roadshow was designed to be broad-reaching
 The Republic’s had been absent from the international bond markets for
the last six years
 There was a non-deal road-show in April 2013 (part of IMF/WB Spring
meetings) and some periodic meetings with some investors
 Two teams travelled to London, Frankfurt, Munich, Sam
Francisco, Los Angeles, Boston and New York
 Ghana met with 58 investors via one -on-one meetings, group
events or conference calls
 The Ghana team was represented by
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Minister of Finance
Deputy Minister of Finance
Governor of Bank of Ghana
Deputy Governor of Bank of Ghana
Additional officials from both the Ministry of Finance Bank of Ghana
6
THE GHANA CREDIT STORY
 Despite current fiscal challenges, investors saw fundamental
long-term value in Ghana reflected in:
 Governance
 Political stability with strong institutions
 Good governance - Ghana consistently ranks in the Top 10 for African
Governance (Mo Ibrahim Index)
 Good Business Environment
 Strong Reform agenda – Public Financial Management, Financial
Sector, Infrastructure
 The Economy
 One of the fastest growing economies in Africa
 A diversified economy
 Oil & Gas Prospects with sound revenue management under the
Petroleum Revenue Management Act
7
TERMS OF THE TRANSACTION
ISSUER
Republic of Ghana
ISSUE RATINGS
B1 Stable (Moody’s)
B+ Negative (Fitch)
B Stable (Standard & Poor)
Size
US$ 1 billion
Coupon
7.875%
Price
99.1515
Issue Date
7 August 2013
Maturity Date
7 August 2023
Proceeds
$741,432,500 (after discount and estimated issue
expenses)
Listing
Irish Stock Exchange
Ghana Stock Exchange (To be listed in August 2013)
8
ANALYSIS OF RECENT AFRICAN SOVEREIGN
ISSUES
ISSUER
RATING
Ghana
B1/B+/B
Nigeria
BB-/BB-
SIZE
ISSUE
($MM) DATE
1,000 Aug 2012
MATURITY Coupon YIELD AT
(YRS)
(%)
ISSUE (%)
10
7.875
8.000
500 July 2013
5
5.125
5.375
BB-/BB-
500 July 2013
5
6.375
6.625
Rwanda
B/B
400 May 2013 10
6.625
6.875
Zambia
B+/B+
750 Sep 2012
5.375
5.625
10
 Note differences
among countries
 Ratings
 Timing or dates
 Size of offers
 Blend of offers
(Nigeria)
 Tenor of offers
 Market
conditions
 Processes
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COMPARISON OF COSTS
 Nigeria
 Higher credit rating
 Shorter maturity (5-Year)
 Rwanda
 Good market timing (May 2013)
 Before Bernanke’s announcement (Wednesday June 19) of likely
tapering of quantitative easing resulting in interest rate hikes and
high market volatility
 Zambia
 Good market timing (September 2012)
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SECONDARY MARKET QUOTES
AUGUST 7, 2013
ISSUER
Coupon (%)
MATURITY
YIELD
Ghana
8.500
2017
5.65
Ghana
7.875
2023
8.06
Nigeria
5.125
2018
4.52
6.375
2023
5.97
Rwanda 6.625
2023
8.13
Zambia 5.375
2022
7.03
 Secondary market trading
indicates that Ghana’s bond
is well priced
 Rwanda (B) is trading at a
higher yield than Ghana
(B/B+) (8.13% versus
8.06%)
 Therefore Rwanda is NOT
more creditworthy than
Ghana
 Zambia is trading at a
higher yield compared to
Ghana 2017 (because of
maturity dif ference –
Ghana 2017 has shorter
maturity)
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INVESTORS WHO BOUGHT OUR BONDS
Summary of Order Book
Orders ($m)
$2,157
# of Orders
174
Allocations ($m)
$750
Allocations (# of
investors)
158
Allocations to
Local Institutional
Investors ($m)
$16.5
Allocations by Investor Location
Asia Other
2% 2%
Europe
15%
U.K.
21%
U.S.A.
60%
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MANAGING OUR DEBT MORE EFFICIENTLY
 Ghana became the first Sub -Saharan African country
(excluding South Africa) to use the Eurobond market to
manage its overall debt by:
 Reducing cost
 Reducing the risk of rollover
 Ghana 2017 is a bullet bond repayable in October 2017
 Risk of high interest rate or uncertain market access
 Prudent to initiate an orderly retirement to reduce market
risks of rollover
13
REDUCING THE COST AND ROLLOVER RISK
OF THE GHANA 2017 BOND
 On 26 July 2013, one day after pricing of the new US$750m
7.875% notes due 2023 (the “New Notes”), Ghana launched
an invitation to holders of Existing Ghana 2017 Notes to
exchange their holdings for up to US$250m of new 7.875%
notes due 2023
 US$356m of Existing Notes were validly tendered
 This translated into and Exchange of $219 million face value
of the Ghana 2017
 The dif ference in interest costs between the Ghana 2017 bond
(8.50%) and the new Ghana 2023 Bond (7.875%) translates
into an estimated annual savings of $ 1 .375MM
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REDUCING THE COST OF DOMESTIC DEBT
 The proposed refinancing of maturing domestic debt with
Eurobond proceeds is justified in the dif ference in cost
between domestic debt (19 – 23%) and the Eurobond
(7.875%).
 Estimated annual interest savings after adjusting for
exchange rate depreciation is GH¢21 – 48 million
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CONCLUSION
 Ghana achieved its financing objectives with the transaction
Extended Ghana’s maturity profile
Reduced the rollover risk of the Ghana 2017 bond
Raised cost effective funds to refinance high-cost domestic term debt
Set a new benchmark and achieved a lower coupon than Ghana’s
debut 10-year USD bond
 Listing of notes on the Ghana Stock Exchange, facilitating access for
local investors.
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 First sub-Saharan African country (excluding South Africa) to listed its
Eurobond on the local stock Exchange
 Ghanaian institutional investors (banks, insurance companies, pension
funds) participated in the offer.
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LOOKING AHEAD
 Debt policy will be guided by the principle of financing capital
expenditures with domestic and international long -term debt
(the upcoming debut issue of a domestic seven -year bond
reflects this policy)
 Project specific bonds will be raised for self -financing projects
while general conventional bonds will be raised for other
capital expenditures
 Ghana will continue to source concessional financing for
social infrastructure.
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