Ken Ofori-Atta, Finance Minister
The Ministry of Finance says its attention has been drawn to a statement issued by the Minority in Parliament, which seeks to cast negative aspersions on the recent GH¢9.7 billion (US$2.25 billion) domestic bond issue by the Government of Ghana.
Reacting to the report, the ministry described the statement as unfortunate, especially coming from Cassiel Ato Forson, a former deputy finance minister, who knows the workings and processes for the issuance of domestic bonds.
The ministry has therefore called on him to stop making such “baseless allegations.”
Just after news of the bond issue broke, the minority said that the issuance was shrouded in secrecy and that other investors were denied the opportunity to participate in the transaction.
The minority NDC also alleged that the transaction was “cooked” to favour a particular investor – Franklin Templeton (FT) – just because a director of one of the funds FT managed knows the finance minister.
Additionally, it said the transaction should have received parliamentary approval because it technically should be considered to be a dollar-denominated sovereign bond issue due to the level of foreign investor participation, and that in its view that amounted to a private placement.
NDC’s Track Record
The ministry recalled that the Mahama-led NDC administration on November 30, 2015 welcomed Franklin Templeton (FT) to participate in GoG’s 5-year bond issue at a coupon rate of 24 percent.
Also, on June 27, 2016, the same NDC government engaged Frank Templeton in another GoG 5-year bond at a coupon rate of 24.5 percent.
The same administration, on November 2, 2016, wooed Franklin Templeton into GoG’s 10-year bond at a coupon rate of 19 percent, and this was just before the New Patriotic Party (NPP) found a GH¢7 billion hole in government’s commitments under the NDC.
It stated that Frank Templeton participated in another bond issue, proceeds of which were to be used to pay off maturing obligations incurred by the same “smart borrowing” NDC government and extend the maturities to the long term.
The ministry explained that the issuance of the current bond was not shrouded in secrecy nor “cooked” for any particular investor.
“The bookrunners, (Barclays, Stanbic and SAS), on behalf of the ministry of finance, have been mandated since 2015 to issue these domestic bonds on a regular basis as per the debt issuance calendar which the ministry of finance (MoF) puts out every quarter.
“Also the book runners announce and publish every impending bond issue to the market the week of issue and provide price guidance to the market. This particular bond issue was no different and was done in conformity with the established process. It was announced by the Book Runners to the market on March 30, via email and same published on MoF and Bank of Ghana (BoG) websites with settlement on April 3.
“FT was not the only participant, there were over 25 other buyers, including other foreign entities, who all brought in dollars to convert to cedis to buy the bonds.”
Tradition Goes On
“The conventional processes for the issue of bonds using the book building approach were adhered to in this particular issuance. It is our understanding that the said investor engaged various market participants and other key institutions, including the IMF, before deciding to participate in the bonds. It is worth noting that local investors also participated.
“The said investor participated in the issuance in the manner they have always done since 2006 through their local Primary Dealer, Barclays Bank, and their local custodians, Standard Chartered Bank and Stanbic Bank.
“To have obtained preferential treatment, all the above mentioned institutions would have had to conspire to do so, a situation which is unfathomable. The investor in question, FT, has held Government of Ghana bonds of up to $2 billion prior to this transaction. Indeed, FT has been buying and investing in government bonds since 2006.”
“This issuance, like all other domestic bonds issued under this bond programme since 2015, did not require parliamentary approval.
“Approval was given under the initial application to Parliament in the 2015 Budget Statement and Economic Policy document to run such a bond issuance programme. The ministry has the mandate to fund the deficit as contained in the budget approved by Parliament through the issuance of debt instruments and to manage the countries debt stock.”
Impact Of Transaction
According to the ministry, “The issuance brought in significant amount of foreign currency, which was converted into cedis to purchase the bond, helping to strengthen the value of the cedi and providing the much-needed respite for the citizens of Ghana.
“The transaction would also lengthen the maturity periods of government debts, thereby reducing the short term redemption and rollover pressures on government.
“The proceeds from the bond issue are to be used for liability management and for the re-profiling of our domestic debt stock by repaying more expensive short-term debt as it matures, and as such it shall not add to the total debt stock of the nation.”
By Samuel Boadi