Government to pay 40% interest rate on “innovative” zero-coupon bond – Seth Terkper
Gvernment may have to cough up some $150 million as interest payment on the $525 million zero-coupon bond issued by government as part of the $3bn Eurobond issued on the international capital market in 2021.
The $150 million to be paid as interest, former Minister for Finance, Seth Terkper, has said, is an average interest rate of 40 percent charged on the zero-coupon bond touted as “innovative” by government.
“The 2021 Sovereign Bond mix had the zero-coupon bond that was initially hyped as innovative but later exposed as very expensive.
“Ghana received about $350m immediately in exchange for a total or “bullet” loan repayment of $500m in April 2025.
“The $150m forgone or discount implies a steep simple average interest rate of about 40 percent,” he remarked.
Mr Terkper made the disclosure touching on the debate of high interest rates between the Bank of Ghana and Togbe Afede XIV.
The April 2021 $3 billion Eurobond issuance per official reports comprised of four tranches – $525 million 4-Year Zero Coupon, $1 billion 7-year Weighted Average Life (WAL) priced at 7.75%, $1 billion 12-year WAL at 8.625% and $500 million 20-year WAL with a coupon of 8.875%.
2021 $3 billion Eurobond issuance oversubscribed
Ghana’s $3 billion Eurobond issuance on the international capital market in 2021 was oversubscribed two times.
The oversubscription of the bond valued at $6 billion, marked the successful debut of the Eurobond and made Ghana the first Sub-Saharan country to issue a Eurobond since the advent of the Covid-19 pandemic.
Read: Forex inflow to Nigeria reached $30 billion in Q3 2021
The debt issuance comprised of four tranches – $525 million 4-Year Zero Coupon, $1 billion 7-year Weighted Average Life (WAL) priced at 7.75%, $1 billion 12-year WAL at 8.625% and $500 million 20-year WAL with a coupon of 8.875%.
As earlier noted by the Finance Minister, funds raised from the issuance will be used to finance the budget deficit as well as conduct liability management on both earlier issued external and domestic bonds.
Government in the 2021 Budget Statement announced its plans of executing a programme aimed at raising up to $5 billion through issuances of Eurobond, Diaspora bond, Sustainable bond and Syndicated loans.
The $3 billion 2021 Eurobond was therefore one of the four vehicles government intended to use to raise up to $5 billion.
Ghana in 2018, successfully raised $2 Billion from the international capital market, the country in 2019 also successfully raised $3 Billion.
It raised a similar amount – $3 billion – in February 2020, a month prior to recording its first case of the Covid-19 pandemic and subsequent increased adverse impact of the pandemic on global economies which restricted borrowings to market access countries (MAC) like Ghana.
Ghana’s restricted access to external markets for financing
Meanwhile, Mr Terkper, has raised concerns that the country is facing restricted access to external markets for financing.
He indicated that, this is due to the country’s current debt levels, risk of debt distress, amongst others, which he believes has kept interest rates high in the country.
Commenting further on the debate between the Bank of Ghana and renowned chief and investment banker, Togbe Afede XIV, Mr. Terkper said the challenges within the fiscal economy is making it difficult for the country to raise enough funds at favorable interest rates, a situation he describes as a major contributor to the high cost of credit.
“Ghana is facing restricted access to external markets, given current level of public debt, risk of debt distress and ratings agencies’ downgrades. Hence, the question is whether the limited domestic market can accommodate most of this financing without private sector “crowding” and, yes, higher interest rates,” he stated.
