Government began processes to issue a five-year cedi-denominated bond on Tuesday with the publication of an initial pricing guidance through the Ghana Stock Exchange and the closure of the order book on Thursday.
A release from the Bank of Ghana said the issuance will roll over maturing two-year notes into five-year bonds.
Courage Kingsley Martey, a senior analyst with Databank Research, said in an interview with Business24 that on Monday, March 1, a five-year bond with a face value of GH¢1.38bn matured; however, the Treasury did not request a rollover.
This, he said, will create potential demand for the five-year offer. The rollover security will mature in 2026.
According to the Treasury debt issuance calendar for the first quarter, an indicative size of GH¢1.4bn for the five-year bond is to be issued. However, the actual amount accepted at the offer will depend on market conditions and government’s cash flow position at the time of the issuance.
“On the demand side, the prevailing market conditions are favourable for the impending issuance because investors are currently looking upward to the maturity curve to benefit from duration gains,” Mr. Martey said.
As at February 26, the secondary market yield on the government’s most recent five-year bond issued in 2020 was 18.6 percent.
“This refinancing strategy by government of rolling a two-year maturity into a five-year tenor increases the average maturity of the debt portfolio, holding other factors constant.
“When a bond matures, the government typically refinances the maturing bond with the same tenors. Essentially, investors in the maturing bond are asked to roll over for the same tenor as the maturing bond. The implication of this refinancing strategy is that it maintains the maturity profile of the debt portfolio, holding other factors constant,” the senior analyst explained.
According to the 2020 mid-year budget review, government’s interest payment as a proportion of revenue and grants was projected at 49 percent.