Ghana said it will not to go ahead with a $500 million Eurobond issue, and while it gave no reason for the decision, investors said it had likely balked at the higher yields fund managers had demanded of the junk-rated credit.
Rated B3/B minus, six notches below investment-grade, Ghana had planned to issue an amortising bond with a weighted average five-year tenor in conjunction with a tender offer to buy back some dollar bonds that mature next year.
In a statement on Thursday, Ghana said “it will continue to monitor markets in the context of a potential new issue” and thanked investors “for their positive feedback”.
Ghana said it would still proceed with the capped cash tender offer of up to $100m on its 2017 notes. The deadline for that offer is Friday.
The finance ministry did not respond to Reuters’ requests for comments, but a spokesman said a statement would be issued later on Thursday.
None of the syndicate bankers leading the deal – Bank of America Merrill Lynch, Citigroup and Standard Chartered – was available for comment.
While investors’ robust appetite for emerging markets’ assets makes the decision somewhat surprising, Ghana is not an investor favourite as it struggles with high levels of debt and slumping commodity prices. A national election is scheduled for December 7.
Last year, it was forced to pay investors a 10.75 percent coupon on a new issue, despite a partial World Bank guarantee.
Investors said the mood had soured further after parliament decided on Wednesday to allow central bank funding for the government’s budget up to 5 percent which contravenes the terms of its loan deal with the International Monetary Fund.
“I think that they (Ghana) were hoping for lower yields, i.e. below 10 percent, and to raise $500 million to $1 billion,” said one investor who attended the roadshow.
“They got negative feedback, plus realised that it would be hard to achieve this, given the recent decision by parliament to allow central bank financing of the budget.”
Another investor described Ghana as a “challenging credit” and said a yield above 10 percent was needed.
Ratings agency Moody’s identified in its credit opinion published on Thursday “large gross borrowing requirements and rollover risk due to tight domestic and external funding conditions”, as one of the country’s challenges.
Moody’s has a B3 rating and a negative outlook on Ghana.
Risks for the country are tilted to the downside, MUFG Securities’ CEEMEA Strategy analyst, Trieu Pham, said. Pham agreed that the decision to pull the issue was probably due to pricing.
He noted that Ghana’s investor presentation had said any delay in selling a bond now could mean that the next feasible issuance window would have to be in second half of next year because of upcoming elections and the timing of the 2017 budget.
“We, therefore, expect that the sovereign will intend to return to markets in the weeks ahead,” Pham said.
Ghana’s 2023 Eurobond rose to its highest in more than a week, gaining a cent to trade at 88.500 cents in the dollar, according to Reuters data.
The 2026 bond also added 0.625 cents to trade at 87.500 cents.