Ghana’s Eurobond Costs May Ease if Gabon’s Deal Is Any Guide

ACCRA (Capital Markets in Africa)- Ghana’s government, which is poised to sell as much as $3 billion in Eurobonds this week, would have drawn comfort for a successful deal by Gabon that showed demand for Africa’s high-yielding hard-currency debt remains strong.

The West African country is concluding a series of meetings with international bond investors on Monday. Gabon issued $1 billion of securities on Thursday at a yield on the lower limit of the price-guidance range, even as concern about the spread of the coronavirus weighs on risk appetite.

That augurs well for Ghana’s sale of seven- and 15-year debt, according to Aberdeen Asset Management Plc. While emerging-market hard-currency spreads have widened, that’s been due mostly to the decline in Treasury yields.

 “We might end up with a lower coupon” than on Ghana’s existing debt, said Viktor Szabo, a London-based portfolio manager at Aberdeen who helps oversee $15 billion in emerging-market assets. “Indications from the Federal Reserve that it is not thinking about tightening any time soon” will increase demand for higher-yielding assets.

The coronavirus outbreak has cut back on travel and trade, raising questions about the outlook for global growth. Following last week’s Federal Reserve rates meeting, where he and his colleagues kept policy on hold, Chairman Jerome Powell said the virus will likely hit the Chinese economy and spill wider, though it was too early to assess its impact on the U.S.

U.S. Treasury 10-year yields have dropped 39 basis points this year to the lowest since October. The premium investors demand to hold emerging-market dollar debt rather than Treasuries has widened 21 basis points in the same period. Ghana’s yield premium is 598 basis points after climbing 24 basis points in January, according to JPMorgan Chase & Co. indexes.

Aside from the yield pickup, Ghana also has a positive economic story to sell, according to Gemcorp Capital LLP. The nation’s debt is rated B3 by Moody’s Investors Service, six steps below investment grade and one level higher than Gabon.

“All issuers are currently facing a counterbalancing positive effect from lower U.S. treasury yields as well as apparently still-supportive cash ratios among investment funds,” said Simon Quijano-Evans, the London-based chief economist at Gemcorp. “While Ghana is in an election year, an increasingly prudent central bank and a more diversified commodity exports picture than peers do stand as supportive factors.”

Investors may be concerned about Ghana’s tendency to overspend budget targets during election years. Projects planned by President Nana Akufo-Addo ahead of the December vote may make it difficult to a achieve budget-deficit target of 4.7% of gross domestic product.

Yields on Ghana’s 7.625 dollar bonds maturing in 2029 rose three basis points on Monday to 7.37%. They’ve dropped 97 basis points in the past 12 months, even after retreating from a record low earlier in January. The yield

Should Ghana’s deal price attractively, other sub-Saharan African sovereigns may also jump into the market to borrow at relatively low rates rather than wait to see how the virus risks pan out, Aberdeen’s Szabo said.

“You have the uncertainty of how this virus spreads and what will be the market impact,” he said. “With slower growth, demand for all kinds of commodities probably will be lower, and that’s not going to be good for the region we’re talking about.”

Source: Bloomberg Business News