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Sovereign Participation in the International Bond Market: The Ghana Case


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Title: Sovereign Participation in the International Bond Market: The Ghana Case

Sovereign Participation in the International Bond
Market The Ghana Case
  • Sam Mensah
  • Technical Advisor
  • Ministry of Finance Economic Planning
  • Ghana
  • Annual Conference of ASEA
  • October 30, 2007

  • Why Ghana wanted to issue bonds on the
    international capital market
  • Which factors helped Ghana to tap international
  • How Ghana managed a successful Issue

Why Eurobond?
  • Historical over reliance on concessional debt
    from multilateral sources especially IMF, World
  • Concessional Debt
  • Long gestation period conception to
    disbursement can take up to 3 Years delays can
    be very costly in economic terms
  • Amounts too small to meet infrastructure
    requirements for accelerated growth
  • Conditionalities may not be consistent with
    national priorities
  • High transaction cost appraisal, review
    missions, monitoring and evaluation tie up
    significant national resources
  • But terms are generous
  • Need to diversify funding sources to mitigate
    disadvantages of concessional debt

Ghanas Strengths
  • Reforms undertaken since 2000 have transformed
    Ghanas economic condition and prospects
  • Stable political conditions needed for reforms to
  • Support from Ghanas international partners have
    reinforced the positive steps taken at home
  • Macroeconomic and social indicators are pointing
    in a positive direction
  • Vulnerabilities remain but the strategy is in
    place and the foundation has been laid for
    Ghanas ascent to middle income status by 2015

Ghana's Debt Dynamics
Improved external accounts
External debt service chart
Comparable Rated Sovereign Peer Group (2006)
Debt Management Comparables
  • Ghana performs well against its rated sovereign

Source Fitch and EIU Reports
Successful issuing strategy for a debut issue
  • Elements of successful issuing strategy
  • Political will at the highest levels
  • Competent transaction team
  • Structuring the Offering
  • Telling the Ghana Credit Story

Transaction Team
  • Lead Managers
  • Citigroup, UBS
  • Co-managers (all Ghanaian)
  • Databank, EDC Stockbrokers, New world Investments
  • Issuers Counsel
  • International DentonWildeSapte (Lead) Cravath,
    Swaine Moore (U.S, Law)
  • Local ILC
  • Lead Managers Counsel
  • International Clifford Chance
  • Local JLD MB
  • 7-member MOFEP/BoG Support Team

Timeline /Milestones
Transaction Highlights
On the 27th of September 2007, Citi (and UBS as
joint bookrunners) priced the landmark US750
million 10-year inaugural international bond
issue for the Republic of Ghana, despite very
volatile prevailing market conditions. The
transaction generated in excess of US3 billion
in global demand with 158 investors participating
in the orderbook.
Final Terms New Issue
  • Transaction Summary
  • On September 27th 2007, the Republic of Ghana
    issued its debut US750 million 10-year Reg S/
    Rule144A bond. This transaction was priced
    following a 6-day investor roadshow in the US
    (New-Port Beach/LA, NYC and Boston) and Europe
    (London, Frankfurt/ Munich and Zurich).
  • The orderbook grew in excess of US3 billion,
    this was over 4 times subscribed with 158 orders
    from investors globally.
  • The sovereign issuer was able to achieve the
    maximum size of US750 million that it required
    at the tight end of the initial guidance of 8.50
    to 8.75 thanks to a high quality and
    well-diversified order-book.

Bookbuilding Evolution
Roadshow schedule
Marketing the Transaction
Offering Circular
Sales Force Memo
Key Selling Points
Bloomberg Presentation
Book Building Process
Order Book Analysis
Orders Size
Investor Distribution
Orders by Investor Type
Orders Geographic Distribution
Allocations by Investor Type
Allocations Geographic Distribution
Press Coverage The Republic of Ghana
Press Coverage The Republic of Ghana (contd)
Press Coverage The Republic of Ghana (contd)
Press Coverage The Republic of Ghana (contd)
Press Coverage The Republic of Ghana (contd)
Ghana thrills with 750m bond blowout
Ghana was welcomed by international debt
investors yesterday (Thursday) when it priced the
first offshore bond issue by a sub-Saharan
African government for almost 30 years. The 750m
10 year deal, led by Citigroup and UBS, attracted
more than 3bn of orders from 158 accounts across
the globe. The issue came as Ghana celebrates its
50th year of independence. It was the second
issue from an Old World emerging market issuer
since the recent market volatility, and followed
a successful 2bn five year bond by Indias ICICI
Bank and a 1.25bn 10 year issue by Turkey on
Wednesday. The strength of demand for these
transactions encouraged emerging market debt
specialists to believe stability was returning to
the market. "Having seen two successful deals in
EMEA this week, we expect to see more sovereign
issuance from Gabon, for example," said one
syndicate banker in London. "Then the
quasi-sovereigns should come to the market, which
should pave the way for financials and
corporates." Suggestions that a 750m deal would
be too big for B/B rated Ghana and hurt the
market proved unfounded. Priced at par, the bonds
traded up to 101.50/102.00. "We are very pleased
with the outcome of the deal, but not surprised
it went so well, given that we started working on
it in 2005," said Kwadwo Baah-Wiredu, minister of
finance and economic planning in Accra. "It was
well prepared and represents the international
efforts made by Ghana over the years."
Ghana has implemented stringent economic reforms
in recent times, driving inflation down from 41
in 2001 to 10.4 in August 2007. Its GDP has
grown strongly and Ghana has also benefited from
debt relief agreements in 2001, 2002 and 2004
under the Enhanced Heavily Indebted Poor
Countries (HIPC) programme. It received
multilateral debt relief under last years G8
initiative. Ghana has implemented stringent
economic reforms in recent times, Our story has
been very positive and this positive evolution is
the result of a lot of discipline," said
Baah-Wiredu. "As we seek to continue on the
growth path,
Momentum built quickly, driving the pricing to
the tight end of guidance, although some market
participants though that this was still on the
generous side. "Right timing, right credit but
questionable pricing as the deal has traded 30bp
tighter, one said. It was too cheap by some
margin. The leads obviously didnt exert any
pressure on investors to get a better level, but
then leverage is with investors at the moment
Some accounts that participated in the deal had
already invested in Africa through local currency
bonds and were therefore more familiar and
bullish about the credit. Several Nigerian banks
have also issued Eurobonds this year. Continental
European investors bought 29 of Ghanas bonds,
UK accounts 28, US buyers 42 and Asians 1.
Asset managers took 65 and hedge funds 17,
leaving 18 for banks, insurance companies and
pension funds. "The proceeds of this deal
supplement our domestic resources which finance
these projects in Ghana," said Paul Acquah,
governor of the Bank of Ghana. "We wanted to make
sure that the borrowing was consistent with our
objectives. Debt sustainability was at the core
of going forward with this deal. It is important
to bear in mind how Ghana has been through an
energy crisis, how energy has been rationed and
generating issues. The cost of fixing these
issues is very high but we had to make sure that
we used the proceeds in a prudent
way. Published September 28, 2007 By Hélène
and I think the leads played to that. I was
expecting a spread in the mid-200s and they came
at 387bp, so this was generous indeed." The leads
defended the pricing. "Given the deals
significant size, we felt that a print at 8.5
would give investors the performance they were
after," an official at UBS said. "We did not want
to do a deal at 8.25 that would then go on to
trade weakly in the market. While a smaller deal
was available at a tighter print, this was not
what the issuer wanted to achieve." Leads feel
their way Pricing was also made difficult by the
lack of comparables. From Europe, the Middle
East and Africas emerging markets, only Turkey
had priced a deal since the summers credit
turmoil, and Turkey is an extremely regular and
familiar issuer. Since Ghana is single-B,
sovereigns such as Pakistan, Ecuador, Argentina
and Jamaica were considered as benchmarks, but
dismissed, because of the specificity of each of
those credits and the wide ranges in which they
trade. Investors feedback was the main point of
there are a number of reforms that we want to
undertake, including a major overhaul of the
countrys energy and road infrastructure. We had
the approval from the parliament for an issue of
up to 750m to fund these projects. The
transaction followed an intensive roadshow where
the issuer visited investors in the US and
Europe. These visits helped to establish the main
areas of concern although reconciling the
investors feedback was no easy task. "There was
a wide range of opinions on where value was on
the deal," said an official at Citigroup. "While
there was a consensus on the tenor accounts like,
we had to bridge the gap between the variety of
opinions as far as pricing was concerned. Some
accounts thought there was value through 8
others were at a much wider end. The guidance of
8.5 to 8.75 tried to encompass this feedback
and bridge this gap between accounts."
Press Coverage The Republic of Ghana (contd)
Africa is openEuropean and US dedicated EM
accounts lapped up Ghanas debut Eurobond last
week in a deal that bodes well for future
sub-Saharan sovereign issuance. Disappointed
investors helped propel the bond sharply higher
in the secondary market as the Republic
established a liquid benchmark for the next EM
frontier. John Weavers reports.
The Republic of Ghana (NR/B/B) secured an
outstanding book of US3.25bn for last Thursdays
debut US750m 10-year Reg S 144a Eurobond,
demonstrating the pent-up appetite for sovereign
supply from the region. Citi and UBS were joint
bookrunners for the land-mark issue, which was
priced at par at the tight end of 8.58.75
guidance, equivalent to 387bp over Treasuries,
before rallying on the break. Jonathan Brown,
managing director and co-head of European
syndicate at UBS, said guidance for the first
sub-Saharan sovereign Eurobond outside South
Africa in 30 years was done in something of a
vacuum owing to the lack of an obvious
comparable, as US investors looked to Argentina
and Venezuela, while Europeans focused on
Indonesia and Pakistan none of which really
fitted the bill, according to Brown. Ghana
could probably have done US300m at tighter
pricing but the issuer needed to do a bigger deal
that attracted global demand. Their priority was
achieved by getting a size-able deal done at a
reasonable price that traded well in the
secondary, he added. Some would say the
secondary performance was too good, as the bond
traded as high as 102-1/4 for a 45bp tightening
against Treasuries before settling back to
101-3/4102-1/4 by late Friday, or 368bp over
10-year US debt. An origination manager away from
the deal was impressed by its timing, but
criticised final pricing. The leads were not as
aggressive as they could have been, as a
two-point rally for a 10-year suggests another
1/8 or 1/4 point was clearly achievable, he
said. Brown argued that 8.25 or 8.375 in the
primary state was not practical if the deal was
to gain momentum.
The issue needs to be protected against
potential volatility over the next week or so.
Where the deal trades in a fortnight will
represent a better gauge of how it has done, he
said. Ghanas Finance Minister, Kwadwo
BaahWiredu, was very pleased with the result and
reiterated that the money raised would be used to
tackle energy bottlenecks that have blighted the
economy in recent years as well as to improve
transport infrastructure. Maryam Khosrowshahi,
managing director of DCM at Citi, pointed out
that such spending has a higher economic return
than typical World Bank and ADB loan-funded
projects, which are smaller, take longer to
arrange and tend to focus on social areas such as
education and health. Stuart Culverhouse, chief
economist at Exotix, noted that the US750m issue
was certainly on the higher side of initial
expectations, saying This represents a sizeable
amount that underlines the need for Ghana to
continue with its economic improvements and debt
management reforms in order to make that level of
borrowing sustainable. Khosrowshahi described
the transaction as a tremendous success that
opens the door for other African issues, while
Culverhouse sees the deal as a significant
development that shows countries which follow
the right policies do not have to be cut off from
the international markets. As far as future
issuance is concerned. Baah-Wiredu stressed
that Ghana would keep its options open while
staying within prudent guidelines to maintain the
countrys debt sustainability. He also suggested
that the sovereign bond had opened the gates
through which Ghanaian corporates will follow.
The scale of the demand should certainly
encourage other African issuers to come to the
market. Elsewhere in the sovereign space, Gabon
is expected to launch in November having mandated
Citi and JPMorgan, while Zambia, Tanzania and
Kenya are potential visitors, along with some
Nigerian banks, most probably in 2008.
Published September 29, 2007
Secondary Activity on Ghana 8.5 October 2017
The Republic of Ghana
  • October 2007

Strictly Private and Confidential
Trading History Bid/Offer Price
Re-offer Price
Week 0 24/09 29/09
Week 1 01/10 05/10
Week 2 08/10 12/10
Week 3 15/10 till date
  • Market Commentary
  • The transaction was followed by a strong
    secondary market performance as investors were
    keen to buy the Ghana paper.
  • The bid price has been stable considering this is
    the debut transaction for Ghana.
  • The bond price increased to102 in the course of 6
    days and has stabilized around the 102 region.
  • The bid/offer spread was tightest at issue
    because of the high liquidity. The spread now is
    around 50 cents and would be expected to remain
    around this area.

Trading History Yield
Week 0 24/09 29/09
Week 1 01/10 05/10
Week 2 08/10 12/10
Week 3 15/10 till date
  • Market Commentary
  • The yield tightened last week from the 8.22
    region during the first week of trading to around
    8.17 corresponding to an appreciation in bid
    price during this period.

Trading Volume
  • Market Commentary
  • Week 0 Balanced customer flows.
  • Week 1 Small flow, net customer sellers.
  • Week 2 Net street selling, small customer

  • Challenge of creating a meaningful role for
    local investment banking and legal experts - 3
    Local co managers appointed but process is almost
    completely managed by international advisors
    because of highly technical nature of work. How
    do we capture some of the expertise locally when
    lead managers carry liability?
  • 100 pot allotment means
  • local managers are unable to participate in
    allotment process
  • difficulty of securing allotments for critical
    local investment constituencies
  • Reorienting economic management from
    program-driven discipline to market-driven
  • Developing a strong investor relations culture
    to support secondary market and future issues
    e.g. information desk, regular information
    releases, etc