The Minister of Finance, Mr Seth Terkper, yesterday announced the issuance of five-year treasury bonds to raise GH¢500 million towards infrastructural development.
The Government of Ghana bonds, which will be governed by Ghanaian law and listed on the Ghana Stock Exchange, will be available for investment through the Bank of Ghana’s appointed primary dealers.
Making the announcement at a meeting with institutional investors in Accra, Mr Terkper said a well-developed domestic debt market was critical to the government’s ability to mobilise funds to support infrastructure projects and ensure financial stability and better integration into the global financial system.
“Towards that end, Barclays Bank, Stanbic Bank and Strategic African Securities have been appointed as joint book runners after a competitive selection process,” he said.
Book runner and bonds
A book runner is the underwriting firm that runs or which is in charge of the books and thus the lead manager in the issuance of the bond instruments.
A bond is a debt instrument that a government or a company issues to raise money.
Basically, it is a contract between a government or a company which is acting as the borrower and investors who act as the lenders.
Buying a bond means lending money to the government or the institution that issued the bond, and in return, the government or the company that issued the bond agrees to pay the money back with interest at some point in the future, in this case, five years.
The minister said that the adoption of the book-building approach was designed to be complementary to the established Bank of Ghana methods of issuance and not a replacement.
“The issuance of short-term instruments will continue through the weekly Bank of Ghana auction and this is part of the debt management strategies outlined in the budget, such as the Ghana Infrastructure Investment Fund, Sinking Fund, Ghana Exim, Escrow and on-lending,” he said.
Mr Terkper said one of the key objectives of public debt management in Ghana was to promote the development of an efficient primary and secondary domestic securities market.
Such a market, he said, ought to provide benchmark rates for the entire economy and across the entire maturity spectrum.
“Over the years, government has been using Bank of Ghana’s auction process to issue all of its debt instruments. These are the 91 and the 182-day Treasury Bills, one and two-year notes and the three, five and seven-year fixed rate bonds.
Therefore, unlike the other countries, the Government of Ghana does not use the stock exchange for new issues, even though they are listed after the issue,” he recounted.
He said the move would diversify the availability of bonds and also bolster investor confidence in the local economy.
Funding domestic projects
Mr Terkper said globally, emerging markets did not have a lot of funding from international donors and so it was “critical that you fund your projects domestically”.
He observed that it was not prudent to use short-term funds for long-term development projects, adding that there was the need to create a dedicated market for long-term securities.
In other African countries, he said, there had been a conscious shift to the issuance of long-term bonds as a major step to arresting high interest rates in the financial sector.
The announcement of the long-term treasury bond, he said, formed part of the debt management strategy of the government.
Mr Terkper said it formed part of structural measures that were being implemented as part of reforms in the medium and long term to produce effects that had the ability to change past systemic practices that had not helped in shaping the economy.
He gave an assurance that the government was not using the bonds to increase public debt, saying the current debt management strategy that had been instituted would not create room for increased borrowing as was in the past.
He expressed optimism that the measure would check inflation and high interest rates and, therefore, appealed to financial institutions to embrace it.
By: Graphic Online